Comments on: Investigating Mutual Fund Correlations

By: nickel

nickel — Thu, 17 Apr 2008 17:25:06 +0000

Gotcha… Yes, I can see how decreasing vs. negative could be confusing. I was thinking in terms of the slope of the relationship. Thanks for the clarification.

By: Steve

Steve — Thu, 17 Apr 2008 17:18:13 +0000

Correction withdrawn as it looks like Wiki has your terminology also. My thought was that your wording implied the linear relationship is decreasing (growing weaker) as it reached -1.

We must have different backgrounds, but correlations are always described as positive/negative linear or direct/inverse linear in my field to avoid this very confusion.

By: nickel

nickel — Thu, 17 Apr 2008 14:45:54 +0000

Steve: I’m not sure exactly what you’re trying to correct. Linear = linear. Had I said “approximately linear” then you’d have a point, but when someone specifies a linear relationship, it’s typically in reference to a 1 to 1 (or 1 to -1) relationship (i.e., “perfectly” linear).

By: Steve

Steve — Thu, 17 Apr 2008 14:16:09 +0000

Not to get too geeky, but a correlation of -1 is also a perfect linear relationship, just as +1 is, albeit inverse. Just trying to clarify your “a correlation of -1 refers to a decreasing linear relationship” statement.

Nice tool though, very useful.

By: Kyle

Kyle — Wed, 16 Apr 2008 17:56:16 +0000

This is an useful tool. Does anybody know how far back they go in calculating these correlations? I’m guessing it’s 36 months since that’s what Vanguard reports on their website. It would be even more interesting if they had a way to compare 3 or 4 funds with each other in a portfolio and calculate the CAGR and Std Dev of the portfolio over the past 36 months or whatever time period they use.

By: The Dough Roller

The Dough Roller — Wed, 16 Apr 2008 17:32:44 +0000

Thanks for linking to this tool, it’s a new one to me. I’m surprised to see large cap to small cap at just 89%. Of course, correlations change over time, so we need to keep checking back.

By: kitty

kitty — Wed, 16 Apr 2008 17:22:48 +0000

One thing I’ve been curious about in terms of “secure” portion of a portfolio is why the bonds are usually mentioned instead of CDs. Sure at some point in the 80s, bonds had higher yields, but recently, the yield on CDs is higher than yield-to-maturity on AAA bonds — just searched through AAA bonds on my brokerage account.

I am not talking about bond funds, since these don’t have maturity date and carry a whole lot more risk than individual AAA-rated bonds.

This is a question to those more knowledgeable than I am. A bunch of my CDs mature in May, and I\’ve been trying to find some good place for them which has to be in \”safe\” portion of my portfolio to maintain my desired allocation. I’ve already bought max allowed number of series I bonds for the year.

By: P.R.

P.R. — Wed, 16 Apr 2008 16:55:28 +0000

Wow, I never thought concepts from my “Probabilistic Methods” class would ever be useful for me. Makes me wish I didn’t sell my textbook!

By: Saving Freak

Saving Freak — Wed, 16 Apr 2008 15:23:40 +0000

This is why a little exposure to bonds is always a good bet. I wouldn’t put a large percentage or my portfolio there but having a little balance doesn’t hurt.