Asset Allocation — Correlation Analysis
Many advisors and money managers are advocates of Allocating assets across asset classes that do not necessarily trade together. Utilizing ETFs we can look at these correlations between the most commonly recommended asset classes:
- Bonds (income)
- Commodities
- U.S. & Foreign Equities
- Currencies via the U.S. Dollar
- Real Estate
Green is a positive correlation, red is negative. If you’re not familiar with correlation analysis Wikipedia has an outstanding dissertation: Correlation and dependence.
The time frame considered will change the values, i.e. over the last week, month, or year. The figures below are correlations over the last year or roughly from the market bottom.
Tomorrow we’ll take a look at sector correlations utilizing both the S&P Sectors vis-a-vie ETFs and the Morningstar sector classifications.