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Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

  • Writer's pictureSummit Puri

Correlation of Assets in Your Portfolio

Not Samesies

For most of you reading this article, you likely have a portfolio with a mix of bonds and stocks. This is a common portfolio built intentionally to protect your investments in downturns. This type of portfolio has historically provided the protection we all look for because the bonds and stocks(equities) have had low correlation.

 

Correlation, defined by my niece, is simply ‘samesies.’

 

Well, her response is more appropriately related to her agreement with what was being said than any investment definitions; however, I believe it is an appropriate semi-definition in this case.

 

Samesies, or correlation, is more technically defined as how close two entities or assets are related and the strength of their relationship. I have written about this in the past; if you’d like to read more in detail, take a quick read of “Investing Metrics, Key Risk Metrics”.

 

So, Summit, are you telling me I want to have “no-samesies” in my portfolio? In short, yes. The fewer assets in a portfolio are correlated, the higher the diversification. However, the complexity and interconnectedness of our global economy have increased correlations between multiple assets and asset classes.

 

To internet or not, is that even a question?

Take the internet as an example. Going without the internet isn’t really an option nowadays. Our wrists, hands (phones/rings), glasses, cars, stoves/dryers, coffee makers, and everything else around us can connect in some way to the internet. We’re all so ‘connected’ that being disconnected can create anxiety.

 

This same type of connectivity has been seen with countries and investments across the globe. Globalization and the interconnectedness amongst markets, manufacturers, and governments have led to increased “samesies” among most countries. In many ways, dependencies. We can see the effects and impact of a natural disaster in one market ripple through to multiple markets around the globe. In most cases, the further the rippling effect, the less the impact, and of course, the fewer “samesies” (ok, fine, correlation), the less the effect.

 

This is quite evident when war is in the picture. Many countries that depended on wheat exports from the nations felt the impact of the Russia-Ukraine war. Before the war, it was estimated that 29% of all wheat exports came from Russia and Ukraine; since the start of the war, this has only been 14.3% (consilium.europa.eu). Or the ongoing conflict and escalation of Israel-Palestine has also led to many rippling effects across the world. To learn more about the global impact of these geopolitical events, read this article from John-Mark Young titled Israel War & My Portfolio: Pray, Give, & Stay Disciplined.”   

 

How do I protect myself from correlation risk?

This is where our number gets called. You hi-five one of our Financial Advisors and tag them in to take the ball. Our team of teachers will work with you so your portfolio diversification is set up to align with your goals. “Samsies” risk is minimized by diversifying portfolios with multiple asset classes, even more than just bonds and stocks. Correlation between assets is expected due to global interconnectedness. However, our team can introduce you to new asset classes you may not have considered. To learn more about asset classes, here’s an article that should set the foundation for your next discussion with your advisor – Asset Classes: Understanding your Investments”. As always, if you have any questions or would like to dig deeper into your portfolio, take a moment and reach out to one of our advisors. Our team is always ready to help.

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Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

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