Correlation Between State Street and Invesco Gold

Can any of the company-specific risk be diversified away by investing in both State Street and Invesco Gold 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 State Street and Invesco Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between State Street Aggregate and Invesco Gold Special, you can compare the effects of market volatilities on State Street and Invesco Gold 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 State Street with a short position of Invesco Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Invesco Gold.

Diversification Opportunities for State Street and Invesco Gold

0.09

Correlation Coefficient

State Street  Invesco Gold

Significant diversification

The 3 months correlation between State and Invesco is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding State Street Aggregate and Invesco Gold Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Gold Special and State Street 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 State Street Aggregate are associated (or correlated) with Invesco Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Gold Special has no effect on the direction of State Street i.e., State Street and Invesco Gold go up and down completely randomly.

Pair Corralation between State Street and Invesco Gold

Assuming the 90 days horizon State Street Aggregate is expected to under-perform the Invesco Gold. But the mutual fund apears to be less risky and, when comparing its historical volatility, State Street Aggregate is 5.58 times less risky than Invesco Gold. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Invesco Gold Special is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,885  in Invesco Gold Special on September 15, 2024 and sell it today you would lose (94.00) from holding Invesco Gold Special or give up 3.26% of portfolio value over 90 days.

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

State Street Aggregate  vs.  Invesco Gold Special

State Street Aggregate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street Aggregate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco Gold Special

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Gold Special has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Invesco Gold is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with State Street and Invesco Gold

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

The idea behind State Street Aggregate and Invesco Gold Special 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.