Correlation Between SPDR Gold and Emerging Markets

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

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

Diversification Opportunities for SPDR Gold and Emerging Markets

0.72

Correlation Coefficient

SPDR Gold  Emerging Markets

Poor diversification

The 3 months correlation between SPDR and Emerging is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and SPDR Gold 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 Gold Shares are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets has no effect on the direction of SPDR Gold i.e., SPDR Gold and Emerging Markets go up and down completely randomly.

Pair Corralation between SPDR Gold and Emerging Markets

Considering the 90-day investment horizon SPDR Gold Shares is expected to generate 1.14 times more return on investment than Emerging Markets. However, SPDR Gold is 1.14 times more volatile than Emerging Markets Fund. It trades about 0.42 of its potential returns per unit of risk. Emerging Markets Fund is currently generating about -0.12 per unit of risk. If you would invest  20,218  in SPDR Gold Shares on January 20, 2024 and sell it today you would earn a total of  1,816  from holding SPDR Gold Shares or generate 8.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

SPDR Gold Shares  vs.  Emerging Markets Fund

SPDR Gold Shares

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 26 (%) 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.

Emerging Markets

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR Gold and Emerging Markets

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

The idea behind SPDR Gold Shares and Emerging Markets Fund 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.