Dividend Investing Ideas Center
Have you ever wished for the safety of bonds, but the return potential...
During the financial crisis, correlations among asset classes thought to be relatively uncorrelated suddenly all seemed to move together.
While correlations never actually approached +1, which would have meant perfect correlation (a correlation of -1 is when one asset class moves up and the other moves down, while zero means the correlation is random), the crisis did point out a seeming flaw in portfolio construction.
Craig Israelsen, an associate professor of finance at Brigham Young University in Provo, Utah, wondered if these tighter correlations have persisted and what the implications of any change in correlations mean for investors. Writing in On Wall Street magazine, Prof. Israelsen took a look back at correlations during the 2008-09 crisis and compared them to current correlations between the benchmark asset, U.S. large-cap stocks and 11 other asset classes – U.S. mid-cap stocks, U.S. small-cap stocks, non-U.S. developed stocks, emerging markets stocks, real estate, natural resources, commodities, U.S. bonds, Treasury Inflation-Protected Securities, non-U.S. bonds and cash.