Table of Correlation between Investment Classes

[getoutearly]

Does anyone know of a website that would show the statistical correlation between various aset classes (large cap US equities index  and international equities index, REITs with Large Cap US equities, ST US Bonds with Foreign Bonds etc)?

 

[Ed_The_Gypsy]

Several folks have shown how foreign holdings can improve portfolio performance due to the reduced correlation with domestic equities.

Andrew Tobias,
http://www.andrewtobias.com/
has a friend, CPA Less Antman, who has a board at
http://www.simplyrich.com/board.htm

Less says that a 50/50 foreign/domestic equities portfolio has never been down for more than 5 years at a stretch. A little while back, he noted that it was recently up to about 5.5 years, but I am sure it has recovered by now. My mixed portfolio certainly has.

Bill Bernstein at The Efficient Frontier
http://www.efficientfrontier.com/ef/index.shtml
In some of his earlier articles that a smaller (10%?) fraction had benefits due to low correlation.

Paul Merriman of Sound Investing
http://www.fundadvice.com/sound-investing/
Has tables that show the same thing.

Callan Associates publish a Periodic Table of diversified asset classes
http://www.callan.com/resource/
that show how the lead changes from year to year.

However, John Greaney and others do not like to invest outside of the US.

Ya pays your money and ya takes your choice.

 

[cute fuzzy bunny]

And remember that the correlations that are demonstrated are historic...

 

[Spanky]

" ...The correlation among asset classes appears to be inherently unstable. Unstable relationships complicate the asset allocation decision. The conventional practice of using historical correlations relies on relationships in the past being the same in the future, which is not correct. ....."


http://www.fpanet.org/journal/articles/2006_Issues/jfp0206-art7.cfm?renderforprint=1

 

[pjdaddy]

And remember that the correlations that are demonstrated are historic...

I would be surprised to find a correlation not based on existing data...

 

[Spanky]

I think TH means that the correlation will change (or historical correlation will not persist).

 

[cute fuzzy bunny]

Replace the word 'will' with 'may', and yes, you got it. Historic correlations very well might not exist going forward.

 

[SC]

I think TH means that the correlation will change (or historical correlation will not persist).

And if memory serves, Bernstein mentioned in his books that the correlations are different in an up market than in a down market. As an engineer I want to just crunch a few numbers and - presto! - the perfect allocation. Alas, it's not so easy (or even possible)... lots of guesswork and hoping for the best, instead.

SC

 

[Ed_The_Gypsy]

In fact, it is claimed that international markets are becoming more and more correlated with domestic markets. Maybe so, but there are still differences and I follow Less Antman's ideas with some success.

 

[cute fuzzy bunny]

Plus the difference between owing half US and half foreign stocks 30-50 years ago may bear no resemblance to buying the same sorts...or even the same companies...today. Companies and economies are more global today. Computers and internetworking certainly change many dynamics that might have favored a foreign company vs a domestic one, or vice versa. Foreign industries that did well might not be very competitive today vs domestic, again vice versa.

Foreign isnt a bad idea. Other uncorrelated assets arent bad ideas. I dont think I'd sock 50% of my money into one category though. But then again i'm in retro mode, cutting back on the number of funds, slices, buckets and other stuff. They all seemed a little bit run up vs plain old domestic equities.

 

[Ed_The_Gypsy]

I have another twist on currency. I am paid in Canadian dollars, which, someone may have noticed, have been rising against the US dollar for the past two or three years. Unfortunately, my taxes are a little higher. Oh, well.

 

[Helen]

I have another twist on currency.  I am paid in Canadian dollars, which, someone may have noticed, have been rising against the US dollar for the past two or three years.  Unfortunately, my taxes are a little higher.  Oh, well.

Ed, when you count in health care costs your taxes might not really be higher.

Thanks for your post with all the links.

-helen

 

[Ed_The_Gypsy]

I pay into the Alberta health care system, but I have not used its beneifts yet. It certainly does not cover my family, still residing in the US, so we pay full boat there, too. Until I came to my senses and proclaimed myself to be a permanent resident, I was set to pay both Canadian taxes plus full US social security as an independent consultant.