Correlation Between Energy Select and SPDR Gold

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

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

Diversification Opportunities for Energy Select and SPDR Gold

-0.21

Correlation Coefficient

Energy Select  SPDR Gold

Very good diversification

The 3 months correlation between Energy and SPDR is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector 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 Energy Select 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 Energy Select Sector 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 Energy Select i.e., Energy Select and SPDR Gold go up and down completely randomly.

Pair Corralation between Energy Select and SPDR Gold

Considering the 90-day investment horizon Energy Select Sector is expected to under-perform the SPDR Gold. But the etf apears to be less risky and, when comparing its historical volatility, Energy Select Sector is 1.03 times less risky than SPDR Gold. The etf trades about -0.66 of its potential returns per unit of risk. The SPDR Gold Shares is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  24,984  in SPDR Gold Shares on September 23, 2024 and sell it today you would lose (774.00) from holding SPDR Gold Shares or give up 3.1% of portfolio value over 90 days.

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

Energy Select Sector  vs.  SPDR Gold Shares

Energy Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Energy Select is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SPDR Gold Shares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Gold Shares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, SPDR Gold is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Energy Select and SPDR Gold

The main advantage of trading using opposite Energy Select and SPDR Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Select 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 Energy Select Sector 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .