Correlation Between The Gold and Short Precious

Can any of the company-specific risk be diversified away by investing in both The Gold and Short Precious 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 Short Precious 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 Short Precious Metals, you can compare the effects of market volatilities on The Gold and Short Precious 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 Short Precious. Check out your portfolio center. Please also check ongoing floating volatility patterns of The Gold and Short Precious.

Diversification Opportunities for The Gold and Short Precious

-0.55

Correlation Coefficient

The Gold  Short Precious

Excellent diversification

The 3 months correlation between The and Short is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding The Gold Bullion and Short Precious Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Precious Metals 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 Short Precious. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Precious Metals has no effect on the direction of The Gold i.e., The Gold and Short Precious go up and down completely randomly.

Pair Corralation between The Gold and Short Precious

Assuming the 90 days horizon The Gold Bullion is expected to under-perform the Short Precious. In addition to that, The Gold is 2.26 times more volatile than Short Precious Metals. It trades about -0.24 of its total potential returns per unit of risk. Short Precious Metals is currently generating about 0.1 per unit of volatility. If you would invest  973.00  in Short Precious Metals on October 10, 2024 and sell it today you would earn a total of  39.00  from holding Short Precious Metals or generate 4.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

The Gold Bullion  vs.  Short Precious Metals

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.

Short Precious Metals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Short Precious Metals are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Short Precious may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with The Gold and Short Precious

The main advantage of trading using opposite The Gold and Short Precious positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if The Gold position performs unexpectedly, Short Precious 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 Short Precious will offset losses from the drop in Short Precious' long position.

The idea behind The Gold Bullion and Short Precious Metals 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.