March 3, 2015

You want negative correlated investments in your portfolio. Why? Example?

3 thoughts on “March 3, 2015”

  1. Garrett Haag says:

    If you have negatively correlated assets your portfolio will be more balance. Stocks and bonds are negatively correlated. When one drops hard the other normally jumps a little. One keeps the portfolio above water. Reits are a second negatively correlated assets to stocks. They have a similar return to stocks but do not follow the same waves that stocks do. Emerging markets and other foreign holdings can be negatively correlated to US stocks when there is a rush in or out of a market sector. You want to hold all of these so your portfolio does not take a big nose dive one day and your down half of what you put in. These riskier assets can make your portfolio less risky as a whole in accordance to modern portfolio theory.

  2. Elizabeth Barske says:

    Negative correlation means that there is a relationship between some components of your investment where when some of them are performing well, the negatively correlated ones are not. This is something that you want to have in your portfolio because it will balance out your returns. For example, because stocks and bonds are negatively correlated, if your stocks have a very bad year, then your bonds should have had a pretty good one and the return on your portfolio should have been balanced out.

  3. Mike Finley says:

    Elizabeth and Garrett answered the question beautifully. I have nothing to add.

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