Correlation Between SPDR Gold and MicroSectors Gold

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

By analyzing existing cross correlation between SPDR Gold Mini and MicroSectors Gold 3X, you can compare the effects of market volatilities on SPDR Gold and MicroSectors 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 Gold with a short position of MicroSectors Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Gold and MicroSectors Gold.

Diversification Opportunities for SPDR Gold and MicroSectors Gold

-0.97

Correlation Coefficient

SPDR Gold  MicroSectors Gold

Pay attention - limited upside

The 3 months correlation between SPDR and MicroSectors is -0.97. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Mini and MicroSectors Gold 3X in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors Gold 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 Mini are associated (or correlated) with MicroSectors Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors Gold has no effect on the direction of SPDR Gold i.e., SPDR Gold and MicroSectors Gold go up and down completely randomly.

Pair Corralation between SPDR Gold and MicroSectors Gold

Given the investment horizon of 90 days SPDR Gold is expected to generate 3.57 times less return on investment than MicroSectors Gold. But when comparing it to its historical volatility, SPDR Gold Mini is 2.99 times less risky than MicroSectors Gold. It trades about 0.0 of its potential returns per unit of risk. MicroSectors Gold 3X is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  410.00  in MicroSectors Gold 3X on April 29, 2025 and sell it today you would lose (12.00) from holding MicroSectors Gold 3X or give up 2.93% of portfolio value over 90 days.

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

SPDR Gold Mini  vs.  MicroSectors Gold 3X

SPDR Gold Mini

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Gold Mini has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, SPDR Gold is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

MicroSectors Gold

Risk-Adjusted Performance

Very Weak

Over the last 90 days MicroSectors Gold 3X has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, MicroSectors Gold is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SPDR Gold and MicroSectors Gold

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

The idea behind SPDR Gold Mini and MicroSectors Gold 3X 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.