Understanding Market Correlations
Market correlations can significantly impact your portfolio's risk and return. Understanding these relationships is crucial for effective diversification and risk management.
Types of Correlations
Markets can exhibit different types of relationships:
- Positive correlation (move together)
- Negative correlation (move opposite)
- No correlation (independent movement)
- Dynamic correlation (changing relationships)
Using Correlation Analysis
Apply correlation analysis to:
- Diversify your portfolio effectively
- Identify sector relationships
- Manage overall portfolio risk
- Find hedging opportunities
Common Market Correlations
Key Relationships:
- USD vs. Commodities
- Bonds vs. Equities
- VIX vs. S&P 500
- Related sector stocks