Correlation Between Small Cap and Gold

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

By analyzing existing cross correlation between Small Cap Core and Gold And Precious, you can compare the effects of market volatilities on Small Cap and 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 Small Cap with a short position of Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Gold.

Diversification Opportunities for Small Cap and Gold

0.55

Correlation Coefficient

Small Cap  Gold

Very weak diversification

The 3 months correlation between Small and Gold is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Gold And Precious in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold And Precious and Small Cap 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 Small Cap Core are associated (or correlated) with Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold And Precious has no effect on the direction of Small Cap i.e., Small Cap and Gold go up and down completely randomly.

Pair Corralation between Small Cap and Gold

Assuming the 90 days horizon Small Cap is expected to generate 2.74 times less return on investment than Gold. But when comparing it to its historical volatility, Small Cap Core is 1.44 times less risky than Gold. It trades about 0.1 of its potential returns per unit of risk. Gold And Precious is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,588  in Gold And Precious on May 19, 2025 and sell it today you would earn a total of  320.00  from holding Gold And Precious or generate 20.15% return on investment over 90 days.

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

Small Cap Core  vs.  Gold And Precious

Small Cap Core

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Core are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Gold And Precious

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gold And Precious are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Gold

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

The idea behind Small Cap Core and Gold And Precious 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.