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Not true at all! Over the past 85 years, the correlation between stocks and bonds has ranged from -93% to +85%, with an average of 10% and a standard deviation
by bluedevil2k 13y ago
Not true at all! Over the past 85 years, the correlation between stocks and bonds has ranged from -93% to +85%, with an average of 10% and a standard deviation of 40%! That indicates they are only very slightly correlated, and not enough to create a general rule.
http://media.pimco.com/Documents/PIMCO_Quantitative_Research_Stock_Bond_Correlation_Oct2013.pdf http://media.pimco.com/Documents/PIMCO_Quantitative_Research...
- refurb 13y agoThanks for sharing that. However, that paper only looked at the correlation between the S&P500 and long-term treasuries. A well diversified portfolio should have a mix of bonds including commercial bonds. The disclaimer in the paper points this out: Bonds are represented by long treasuries (Ibbston) which should not be interpreted as a full sample representative of the bond market. Different asset class proxies will have different results. The data that I've seen on stock-bond correlation shows a pretty consistent negative correlation over the 1927-2010 time period. It's not perfect, I admit, but it serves you well when you're trying to minimize risk.
- bluedevil2k 13y agoI've also heard the saying "in a panic, all correlations move to 1". Basically, when the market goes down like in 2008, everything goes down.