Correlation Between SPDR SP and ZKB Gold

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

By analyzing existing cross correlation between SPDR SP Financials and ZKB Gold ETF, you can compare the effects of market volatilities on SPDR SP and ZKB 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 SPDR SP with a short position of ZKB Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and ZKB Gold.

Diversification Opportunities for SPDR SP and ZKB Gold

0.61

Correlation Coefficient

SPDR SP  ZKB Gold

Poor diversification

The 3 months correlation between SPDR and ZKB is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Financials and ZKB Gold ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZKB Gold ETF and SPDR SP 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 SPDR SP Financials are associated (or correlated) with ZKB Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZKB Gold ETF has no effect on the direction of SPDR SP i.e., SPDR SP and ZKB Gold go up and down completely randomly.

Pair Corralation between SPDR SP and ZKB Gold

Assuming the 90 days trading horizon SPDR SP Financials is expected to generate 1.06 times more return on investment than ZKB Gold. However, SPDR SP is 1.06 times more volatile than ZKB Gold ETF. It trades about 0.12 of its potential returns per unit of risk. ZKB Gold ETF is currently generating about 0.11 per unit of risk. If you would invest  5,242  in SPDR SP Financials on September 28, 2024 and sell it today you would earn a total of  378.00  from holding SPDR SP Financials or generate 7.21% return on investment over 90 days.

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

SPDR SP Financials  vs.  ZKB Gold ETF

SPDR SP Financials

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Financials are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ZKB Gold ETF

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ZKB Gold ETF are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, ZKB Gold may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and ZKB Gold

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

The idea behind SPDR SP Financials and ZKB Gold ETF 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.