Asset Correlations
About Asset Correlations
The concept of correlation between asset classes is the foundation of modern portfolio theory. This website is a useful utility for checking the correlation between asset classes and between various sectors of the international stock and bond markets.
The Major Asset Classes
If you click on the Correlation Matrix link on the left, it will generate a current correlation matrix (like the one below) for exchange-traded funds covering the major asset classes.
| TIP | AGG | IGE | GSG | VNQ | RWX | EEM | EFA | VB | VV | VO | VGK | VPL | ||
| Inflation-protected Treasuries | TIP | |||||||||||||
| US Bonds | AGG | 0.75 | ||||||||||||
| Natural Resources (Oil) | IGE | 0.13 | -0.19 | |||||||||||
| Commodities Index | GSG | 0.67 | 0.15 | 0.73 | ||||||||||
| US Real Estate | VNQ | -0.63 | -0.53 | 0.16 | -0.29 | |||||||||
| International Real Estate | RWX | -0.77 | -0.41 | 0.07 | -0.58 | 0.67 | ||||||||
| Emerging Markets | EEM | -0.60 | -0.34 | 0.39 | -0.28 | 0.52 | 0.89 | |||||||
| Europe, Australasia, Far East | EFA | -0.71 | -0.38 | 0.23 | -0.44 | 0.59 | 0.96 | 0.97 | ||||||
| US Small Cap Stocks | VB | -0.87 | -0.70 | 0.12 | -0.47 | 0.83 | 0.77 | 0.67 | 0.73 | |||||
| US Large Cap Stocks | VV | -0.86 | -0.51 | 0.10 | -0.58 | 0.71 | 0.94 | 0.87 | 0.94 | 0.89 | ||||
| US Mid Cap Stocks | VO | -0.82 | -0.59 | 0.30 | -0.40 | 0.75 | 0.90 | 0.88 | 0.91 | 0.92 | 0.97 | |||
| European Stocks | VGK | -0.70 | -0.38 | 0.22 | -0.44 | 0.58 | 0.95 | 0.96 | 1.00 | 0.73 | 0.93 | 0.90 | ||
| Pacific Rim Stocks | VPL | -0.74 | -0.47 | 0.30 | -0.37 | 0.63 | 0.94 | 0.96 | 0.98 | 0.78 | 0.93 | 0.94 | 0.97 | |
| NASDAQ | ^IXIC | -0.89 | -0.63 | 0.05 | -0.56 | 0.68 | 0.83 | 0.76 | 0.83 | 0.94 | 0.94 | 0.92 | 0.83 | 0.85 |
| Intra-portfolio diversification | = 0.28 |
| Portfolio return | = -14.4% |
Each cell represents the correlation between the two corresponding assets.
| Cell Color | Description | Diversification Benefit |
| -0.65 | Asset pair with negative correlation | Excellent Diversification |
| -0.15 | Asset pair with slight negative correlation | Good Diversification |
| 0.2 | Asset pair with mild positive correlation | Moderate Diversification |
| 0.8 | Asset pair with strong positive correlation | Poor Diversification |
For each type of correlation matrix there are various periods. Unfortunately, many of the representative index funds have been recently introduced so we can't yet calculate the correlations for longer periods. Rest assured that we will add longer time periods once the trading history is available. You will notice as you change the length of the time period that the correlation matrix can change dramatically.
There is also a page that gives current price quotes for all the index funds used to calculated the correlation matrix for the major asset classes.
Geographical Diversification
iShares has recently added a whole slew of country ETF's which track the major stock indices for various countries. We've added a country correlation matrix for these countries covering the last three months (90 days of data). As time passes we will add longer periods. However, it is already interesting to note how closely coupled the major European stock indices are.
Sector Diversification
There is also a page showing a sector matrix for the nine major sectors of the S&P index.
Bond Diversification
We've added a new page showing a bond correlation matrix for the various bond terms.
Calculate Your Own Portfolio Diversification
You can now create a correlation matrix for your own portfolio. This feature currently has limited error checking so if you enter tickers that don't exist or don't have sufficient history you will probably get an unintelligle error message. For now, click on 'New' (under 'Custom Portfolio') to enter your own portfolio.
Determine the Variation in Correlation between Two Assets Over Time
Correlation between two assets (or, asset classes) varies over time. For a well-diversified portfolio, it is important that low/negative correlations persist for meaningful time frames. This page allows you to graphically view the change in correlation between two stocks, bonds or index funds over time.
Coming Soon - How does your risk/return compare
If you use a meaningful name when you enter your portfolio, you will be able to compare it to other submitted portfolios.
