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"everything is correlated almost to a degree of 1" Nonsense. Evidence : https://www.portfoliovisualizer.com/asset-class-correlations https://www.portfoliovisua

"everything is correlated almost to a degree of 1" Nonsense. Evidence : https://www.portfoliovisualizer.com/asset-class-correlations https://www.portfoliovisualizer.com/asset-class-correlations ( 2009-2015 time period ) Example: VTI and TLT (total stocks vs. total bonds) has -0.34 correlation.

nkassis 11y ago
Is there similar data for longer periods of time? Seems like it be interesting to see that correlation in periods that include some recessions or am I completely off the mark?
- roymurdock 11y ago
  Figure 2 illustrates five-year correlations between monthly U.S. stock and U.S. bond total returns over five-year intervals since 1926 (17 distinct, nonoverlapping periods). While the long-term average correlation between these two asset classes has been 0.25, the figure shows that correlations over shorter windows vary widely from this average, with a range of 0.72 for the five years ended 1975 to –0.54 for the five years ended 2005. http://www.vanguard.com/pdf/s130.pdf http://www.vanguard.com/pdf/s130.pdf
AnimalMuppet 11y ago
Sure - for the 2009-2015 time period. But the claim was not "everything is correlated almost to a degree of 1". The actual claim was "when things go wrong everything is correlated almost to a degree of 1". Look at the data from 2008, not 2009-2015.
- tosseraccount 11y ago
  Do you have a link for 2008? He said "... bad advice as they are now positively correlated."
  - AnimalMuppet 11y ago
    No. I heard it as a common, repeated observation about 2008, but I don't have a link to actual data.
    - joosters 11y ago
      Yet in your previous comment you were urging people to look at the data... perhaps you should follow your own advice?
      - AnimalMuppet 11y ago
        Well, my point was that tosseraccount's evidence that the claim was wrong did not in fact apply. I was not actually asserting that the claim was true (though I believe it is), merely that the evidence cited against it was irrelevant because it was the wrong time period.
- mynegation 11y ago
  If you look hard enough, you will find specific periods with any values of the correlation. Portfolio is about long-term strategy. That is not to say that I disagree that asset classes became more correlated lately.
- te 11y ago
  https://www.portfoliovisualizer.com/asset-correlations?s=y&numTradingDays=60&endDate=12%2F31%2F2008&timePeriod=1&symbols=VTI%2C+TLT&startDate=01%2F01%2F2008 https://www.portfoliovisualizer.com/asset-correlations?s=y&n... Correlation = -0.49 for 2008.
  - AnimalMuppet 11y ago
    I see. So in 2008, what seems to have happened is a flight to safety, and therefore bonds and the stock market were very much not correlated. I stand corrected.
    - Tycho 11y ago
      You can't use a treasury ETF as a proxy for the whole bond market.
finance-geek 11y ago
Lets not be silly here -- of course not everything ends up with a correlation of exactly 1 during crashes. It is an exaggeration demonstrating a general trend. In 2008, bonds AND stocks fell because of all-out panic where individuals dumped everything and tried to go into cash. The only thing not falling were US Treasuries since that is where all the capital ended up. In 2015, we have a different issue -- a lot of the market is controlled by algos which, upon seeing instability, sell and go to cash. This causes a valley for all asset classes except the safe harbours (US Treasuries...maybe gold.)
- tosseraccount 11y ago
  Markets are controlled by algorithms? Has anyone done a regression analysis on "algo" trading determining market prices? Is it really significant?
- roymurdock 11y ago
  What percentage of the market would you estimate to be controlled/managed by algorithms?
svachalek 11y ago
The quote was about corporate bonds and TLT is a US treasury ETF. I hold TLT in my portfolio as it one of the only ETFs I can find that tends not to move in tandem with absolutely everything else.

nkassis 11y ago

Is there similar data for longer periods of time? Seems like it be interesting to see that correlation in periods that include some recessions or am I completely off the mark?

roymurdock 11y ago
Figure 2 illustrates five-year correlations between monthly U.S. stock and U.S. bond total returns over five-year intervals since 1926 (17 distinct, nonoverlapping periods). While the long-term average correlation between these two asset classes has been 0.25, the figure shows that correlations over shorter windows vary widely from this average, with a range of 0.72 for the five years ended 1975 to –0.54 for the five years ended 2005. http://www.vanguard.com/pdf/s130.pdf http://www.vanguard.com/pdf/s130.pdf

AnimalMuppet 11y ago

Sure - for the 2009-2015 time period. But the claim was not "everything is correlated almost to a degree of 1". The actual claim was "when things go wrong everything is correlated almost to a degree of 1". Look at the data from 2008, not 2009-2015.

tosseraccount 11y ago
Do you have a link for 2008? He said "... bad advice as they are now positively correlated."
- AnimalMuppet 11y ago
  No. I heard it as a common, repeated observation about 2008, but I don't have a link to actual data.
  - joosters 11y ago
    Yet in your previous comment you were urging people to look at the data... perhaps you should follow your own advice?
    - AnimalMuppet 11y ago
      Well, my point was that tosseraccount's evidence that the claim was wrong did not in fact apply. I was not actually asserting that the claim was true (though I believe it is), merely that the evidence cited against it was irrelevant because it was the wrong time period.
mynegation 11y ago
If you look hard enough, you will find specific periods with any values of the correlation. Portfolio is about long-term strategy. That is not to say that I disagree that asset classes became more correlated lately.
te 11y ago
https://www.portfoliovisualizer.com/asset-correlations?s=y&numTradingDays=60&endDate=12%2F31%2F2008&timePeriod=1&symbols=VTI%2C+TLT&startDate=01%2F01%2F2008 https://www.portfoliovisualizer.com/asset-correlations?s=y&n... Correlation = -0.49 for 2008.
- AnimalMuppet 11y ago
  I see. So in 2008, what seems to have happened is a flight to safety, and therefore bonds and the stock market were very much not correlated. I stand corrected.
  - Tycho 11y ago
    You can't use a treasury ETF as a proxy for the whole bond market.

finance-geek 11y ago

Lets not be silly here -- of course not everything ends up with a correlation of exactly 1 during crashes. It is an exaggeration demonstrating a general trend. In 2008, bonds AND stocks fell because of all-out panic where individuals dumped everything and tried to go into cash. The only thing not falling were US Treasuries since that is where all the capital ended up. In 2015, we have a different issue -- a lot of the market is controlled by algos which, upon seeing instability, sell and go to cash. This causes a valley for all asset classes except the safe harbours (US Treasuries...maybe gold.)

tosseraccount 11y ago
Markets are controlled by algorithms? Has anyone done a regression analysis on "algo" trading determining market prices? Is it really significant?
roymurdock 11y ago
What percentage of the market would you estimate to be controlled/managed by algorithms?

svachalek 11y ago

The quote was about corporate bonds and TLT is a US treasury ETF. I hold TLT in my portfolio as it one of the only ETFs I can find that tends not to move in tandem with absolutely everything else.