Correlation Between Vanguard STAR and SPDR Gold

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

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

Diversification Opportunities for Vanguard STAR and SPDR Gold

-0.07

Correlation Coefficient

Vanguard STAR  SPDR Gold

Good diversification

The 3 months correlation between Vanguard and SPDR is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard STAR Funds and SPDR Gold Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Gold Trust and Vanguard STAR 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 Vanguard STAR Funds are associated (or correlated) with SPDR Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Gold Trust has no effect on the direction of Vanguard STAR i.e., Vanguard STAR and SPDR Gold go up and down completely randomly.

Pair Corralation between Vanguard STAR and SPDR Gold

Assuming the 90 days trading horizon Vanguard STAR Funds is expected to under-perform the SPDR Gold. In addition to that, Vanguard STAR is 1.95 times more volatile than SPDR Gold Trust. It trades about -0.07 of its total potential returns per unit of risk. SPDR Gold Trust is currently generating about 0.09 per unit of volatility. If you would invest  495,501  in SPDR Gold Trust on October 5, 2024 and sell it today you would earn a total of  7,499  from holding SPDR Gold Trust or generate 1.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Vanguard STAR Funds  vs.  SPDR Gold Trust

Vanguard STAR Funds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard STAR Funds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vanguard STAR is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

SPDR Gold Trust

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, SPDR Gold may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Vanguard STAR and SPDR Gold

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

The idea behind Vanguard STAR Funds and SPDR Gold Trust 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.