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Well, taking the 5-year time frame, it appears that if you were looking for diversification from (for example) Barclays Aggregate Bond iShares (AGG), you wouldn't want to be using TIPs, as there is a strong correlation between those two. During this period, TIPS returned 4.8% vs 3.7% for the iShares, and presumably they went "up and down" pretty much together.
There seem to be no assets listed in this table with negative correlation, which is actually pretty interesting in itself. There are, however lots of choices with "slight negative correlation".
Picking VO, the Vanguard Mid-Cap ETF as an example, it had "slight negative correlation" with TIPS, AGG, RWX and EEM, so presumably any of those would be a partial offset to VO. According to this table, during this period VO returned 19%, against 4.8% for TIPS, 3.7% for AGG, 11.5% for RWX, and 6% for EEM.
From that, it looks like some sort of mix of VO (19%) and RWX (11.5%) would give you a pretty decent return while maintaining at least a "slight" amount of diversity.
Forget the 3-month period. That's not long enough to judge anything, and during selloffs, correlations tend to congeal anywhere from a little to a whole lot (2008). The short-term correlations (1-year and less) reflect what we have seen over that time period, with small cap stock selling off, large cap booming. This sort of thing is unfortunately most helpful in looking at the rear-view mirror to see what happened historically. Shorter-term is darned hard to implement. But the interactive chart is good for that reason alone. Thanks for sharing.
I would love to see longer term charts (5 year charts) that rolled through major events and trends. I believe recent events and trends such as the Fed Asset Purchase program, Obamacare, war on terror, global warming, and too many Technological discoveries to mention have as much to do with rearrange these correlations as any other variable.
Both Natural and manmade events/trends often cause certain asset classes to react in ways that temporarily scrabble or permanently change the relationship of asset classes. As a result, asset classes can remain "favored" or "out of favor" for inconsistent periods of time due, in part, to these forces.
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There seem to be no assets listed in this table with negative correlation, which is actually pretty interesting in itself. There are, however lots of choices with "slight negative correlation".
Picking VO, the Vanguard Mid-Cap ETF as an example, it had "slight negative correlation" with TIPS, AGG, RWX and EEM, so presumably any of those would be a partial offset to VO. According to this table, during this period VO returned 19%, against 4.8% for TIPS, 3.7% for AGG, 11.5% for RWX, and 6% for EEM.
From that, it looks like some sort of mix of VO (19%) and RWX (11.5%) would give you a pretty decent return while maintaining at least a "slight" amount of diversity.
Pretty interesting... thanks for the post!
Both Natural and manmade events/trends often cause certain asset classes to react in ways that temporarily scrabble or permanently change the relationship of asset classes. As a result, asset classes can remain "favored" or "out of favor" for inconsistent periods of time due, in part, to these forces.
have a nice day, Derf