Correlation Between Financial Select and SPDR Gold

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

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

Diversification Opportunities for Financial Select and SPDR Gold

0.4

Correlation Coefficient

Financial Select  SPDR Gold

Very weak diversification

The 3 months correlation between Financial and SPDR is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and SPDR Gold Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Gold Shares and Financial Select 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 Financial Select Sector 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 Shares has no effect on the direction of Financial Select i.e., Financial Select and SPDR Gold go up and down completely randomly.

Pair Corralation between Financial Select and SPDR Gold

Considering the 90-day investment horizon Financial Select is expected to generate 3.79 times less return on investment than SPDR Gold. In addition to that, Financial Select is 1.34 times more volatile than SPDR Gold Shares. It trades about 0.06 of its total potential returns per unit of risk. SPDR Gold Shares is currently generating about 0.3 per unit of volatility. If you would invest  24,140  in SPDR Gold Shares on December 27, 2024 and sell it today you would earn a total of  3,684  from holding SPDR Gold Shares or generate 15.26% return on investment over 90 days.

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

Financial Select Sector  vs.  SPDR Gold Shares

Financial Select Sector

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Financial Select is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR Gold Shares

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal essential indicators, SPDR Gold exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Financial Select and SPDR Gold

The main advantage of trading using opposite Financial Select and SPDR Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Select 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 Financial Select Sector and SPDR Gold Shares 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.