Thursday, July 11, 2019

Asset Class Correlation For 1H2019

Someone I knew made a remark that for 2019, the price of everything is going up; equities, REITs, bonds and even gold. So that begs the question: is there still correlation between the asset classes?

Using U.S. ETFs representing the various asset classes, plus an equities ETF for the Singapore market (EWS), we shall now turn to Portfolio Visualizer to find out.

Vanguard Total Stock Market ETFVTI-0.930.53-0.400.360.0418.67%
iShares MSCI Singapore Capped ETFEWS0.93-0.33-0.300.460.2413.93%
Vanguard Real Estate ETFVNQ0.530.33-
Vanguard Total Bond Market ETFBND-0.40-0.300.25-
SPDR Gold SharesGLD0.360.460.120.23-0.569.86%

Fig. 1 – Correlation results based on monthly returns for the period 1 Jan 2019 – 30 Jun 2019. For full data click here.

All asset classes had positive returns in 1H2019, yet we see negative correlation between bonds, and the U.S. and Singapore equities. Surprisingly, gold had a positive correlation with the other asset classes.

The above is based on monthly returns. Let us see what would the correlation be like on daily returns.

Vanguard Total Stock Market ETFVTI-0.730.40-0.38-0.170.1618.67%
iShares MSCI Singapore Capped ETFEWS0.73-0.22-0.29-0.040.2213.93%
Vanguard Real Estate ETFVNQ0.400.22-
Vanguard Total Bond Market ETFBND-0.38-0.290.16-0.54-0.056.14%
SPDR Gold SharesGLD-0.17-

Fig. 2 – Correlation results based on daily returns for the period 1 Jan 2019 – 30 Jun 2019. For full data click here.

For Figure 2, we can clearly see that bonds and gold had a negative correlation with the equities ETFs, though gold’s was only slight. 

So what is the conclusion of all these? Correlation is still very much alive even though none of the asset classes had negative returns in the said period. Also, correlation is not hard fixed and can go plus and minus with one another.

So therefore, stay diversified.

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