Correlation Between SPDR ICE and SPDR Gold

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

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

Diversification Opportunities for SPDR ICE and SPDR Gold

-0.25

Correlation Coefficient

SPDR ICE  SPDR Gold

Very good diversification

The 3 months correlation between SPDR and SPDR is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding SPDR ICE BofA 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 SPDR ICE 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 ICE BofA 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 SPDR ICE i.e., SPDR ICE and SPDR Gold go up and down completely randomly.

Pair Corralation between SPDR ICE and SPDR Gold

Assuming the 90 days trading horizon SPDR ICE is expected to generate 24.89 times less return on investment than SPDR Gold. But when comparing it to its historical volatility, SPDR ICE BofA is 6.12 times less risky than SPDR Gold. It trades about 0.05 of its potential returns per unit of risk. SPDR Gold Shares is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  20,788  in SPDR Gold Shares on September 2, 2024 and sell it today you would earn a total of  2,405  from holding SPDR Gold Shares or generate 11.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.42%
Values	Daily Returns

SPDR ICE BofA  vs.  SPDR Gold Shares

SPDR ICE BofA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR ICE BofA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SPDR ICE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR Gold Shares

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SPDR Gold may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR ICE and SPDR Gold

The main advantage of trading using opposite SPDR ICE and SPDR Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR ICE 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 SPDR ICE BofA 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.