My investment portfolio has 4 assets: global equity, Indian equity, Indian bonds, and gold. I didn’t put this portfolio together myself; my financial advisor recommended this to me. I hesitantly took his recommendation because I couldn’t tell how good/bad this portfolio mix was.
I have been learning about portfolio construction for the past few months. As I learn about portfolio construction, I keep evaluating this portfolio—and I see that this is a great portfolio.
Recently, I have been thinking about asset correlation and how uncorrelated or negatively correlated assets make up resilient portfolios. Naturally, I checked the correlation of the assets in my portfolio. This is what I got, and as you can see, +0.3 is the worst correlation.
Notes about the data used to calculate the correlation. I couldn’t get data for the very specific assets I am investing in, so I used substitute data where necessary.
- I got US equity return data from the ‘Toolkit’ spreadsheet of portfoliocharts.com. This is the substitute for global equity data.
- For Indian equity, I am using Sensex data. I invest in a much broader index than Sensex, but this was the data I could get.
- I couldn’t get Indian bond return data, so I used the NAV history of the oldest debt fund, ABSL Income fund.
- The correlation is calculated based on their calendar year returns from 1996 through 2023.
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