Correlation Between SPDR Gold and McDonalds

Can any of the company-specific risk be diversified away by investing in both SPDR Gold and McDonalds 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 McDonalds 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 McDonalds, you can compare the effects of market volatilities on SPDR Gold and McDonalds 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 McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Gold and McDonalds.

Diversification Opportunities for SPDR Gold and McDonalds

-0.87

Correlation Coefficient

SPDR Gold  McDonalds

Pay attention - limited upside

The 3 months correlation between SPDR and McDonalds is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds 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 McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of SPDR Gold i.e., SPDR Gold and McDonalds go up and down completely randomly.

Pair Corralation between SPDR Gold and McDonalds

Considering the 90-day investment horizon SPDR Gold Shares is expected to generate 0.86 times more return on investment than McDonalds. However, SPDR Gold Shares is 1.17 times less risky than McDonalds. It trades about 0.05 of its potential returns per unit of risk. McDonalds is currently generating about 0.03 per unit of risk. If you would invest  17,580  in SPDR Gold Shares on January 24, 2024 and sell it today you would earn a total of  3,977  from holding SPDR Gold Shares or generate 22.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

SPDR Gold Shares  vs.  McDonalds

SPDR Gold Shares

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 21 (%) 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.

McDonalds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with SPDR Gold and McDonalds

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

The idea behind SPDR Gold Shares and McDonalds 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.