Wednesday, October 7, 2009

ETF correlation

I already posted some articles focused on assets classes correlation like the one about correlation between commodities and equities. It shows correlation coefficient for precious metals commodities (gold, silver,platinum), crude oil and major US equity indices (S&P 500, DJIA).

Correlation analysis is key factor for successful portfolio diversification. Positive correlation means that the prices of shares or ETFs move up or down together. They will probably be impacted in similar way.

If the prices of shares or ETFs move in different directions we call it negative correlation. In this case we achieve high degree of diversification.

There is one useful website where you can do analysis asset correlations by using ETF. It has matrix for countries, sectors or bonds. Another interesting function is correlation over time where you can check the development of correlation coefficient for two tickers.

Comments

2 Responses to "ETF correlation"

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Etf Trading said... October 29, 2009 at 8:52 PM

The ETF Variance-Covariance matrix, based on
daily returns. We think that a longer interval period (such as monthly) results in
information loss, especially in todays fast paced trading environment.