Correlation Between The Gold and Equity Income

Can any of the company-specific risk be diversified away by investing in both The Gold and Equity Income at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining The Gold and Equity Income into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Gold Bullion and Equity Income Portfolio, you can compare the effects of market volatilities on The Gold and Equity Income and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in The Gold with a short position of Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of The Gold and Equity Income.

Diversification Opportunities for The Gold and Equity Income

0.66

Correlation Coefficient

The Gold  Equity Income

Poor diversification

The 3 months correlation between The and Equity is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding The Gold Bullion and Equity Income Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income Portfolio and The Gold is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on The Gold Bullion are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income Portfolio has no effect on the direction of The Gold i.e., The Gold and Equity Income go up and down completely randomly.

Pair Corralation between The Gold and Equity Income

Assuming the 90 days horizon The Gold Bullion is expected to under-perform the Equity Income. In addition to that, The Gold is 2.53 times more volatile than Equity Income Portfolio. It trades about -0.23 of its total potential returns per unit of risk. Equity Income Portfolio is currently generating about -0.3 per unit of volatility. If you would invest  1,646  in Equity Income Portfolio on October 10, 2024 and sell it today you would lose (185.00) from holding Equity Income Portfolio or give up 11.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

The Gold Bullion  vs.  Equity Income Portfolio

Gold Bullion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Gold Bullion has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Equity Income Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equity Income Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with The Gold and Equity Income

The main advantage of trading using opposite The Gold and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if The Gold position performs unexpectedly, Equity Income can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Equity Income will offset losses from the drop in Equity Income's long position.

The idea behind The Gold Bullion and Equity Income Portfolio pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.