Correlation Between Short Precious and The Gold

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Can any of the company-specific risk be diversified away by investing in both Short Precious and The 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 Short Precious and The Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Precious Metals and The Gold Bullion, you can compare the effects of market volatilities on Short Precious and The 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 Short Precious with a short position of The Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Precious and The Gold.

Diversification Opportunities for Short Precious and The Gold

-0.64
  Correlation Coefficient

Excellent diversification

The 3 months correlation between SHORT and The is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Short Precious Metals and The Gold Bullion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Bullion and Short Precious 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 Short Precious Metals are associated (or correlated) with The 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 Bullion has no effect on the direction of Short Precious i.e., Short Precious and The Gold go up and down completely randomly.

Pair Corralation between Short Precious and The Gold

Assuming the 90 days horizon Short Precious Metals is expected to generate 1.61 times more return on investment than The Gold. However, Short Precious is 1.61 times more volatile than The Gold Bullion. It trades about 0.22 of its potential returns per unit of risk. The Gold Bullion is currently generating about -0.15 per unit of risk. If you would invest  893.00  in Short Precious Metals on August 28, 2024 and sell it today you would earn a total of  95.00  from holding Short Precious Metals or generate 10.64% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Short Precious Metals  vs.  The Gold Bullion

 Performance 
       Timeline  
Short Precious Metals 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Short Precious Metals are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Short Precious is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Gold Bullion 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in The Gold Bullion are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, The Gold is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Short Precious and The Gold Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Short Precious and The Gold

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

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