Correlation | May 10, 2017

Category: Quant Insight

Our Observations: Nearly every asset class had short-term correlations much closer to long-term correlations. We think this will assist in portfolio construction as the diversification benefits of cross asset portfolios should improve. The best example is the return of negative correlation for bonds, which is historically a strong indication that rate policy may not be the primary factor driving returns.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

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