Greg Leonberger, FSA, EA, MAAA, FCA
Director of Research, Managing Partner
This week’s chart shows the dynamic nature of correlations between asset classes by comparing correlations amongst traditional asset classes over 20-year1 and 5-year2 historical periods.3 The chart above shows how much these correlations have all increased when comparing the 5-year figures to the longer dated 20-year period. What does this mean for investors? We see two main takeaways:
As now outlined in both this chart and “Correlation Doesn’t Tell the Whole Story”, correlations can be helpful in conducting asset allocation studies, but they also feature some notable shortcomings that should be well understood by those who rely on them for portfolio decisions.
1 March 1992 – February 2012
2 March 2007 – February 2012
3 Indices used for analysis were Russell 1000, Russell 2000, MSCI EAFE, MSCI Emerging Markets, and BarCap Aggregate
The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.
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