Comments on: Weak Correlation: Another Reason to Have Global REIT

By: State Street Launched Global Real Estate ETF (RWO)

State Street Launched Global Real Estate ETF (RWO) — Wed, 04 Jun 2008 14:48:48 +0000

[...] past couple of years after the real estate boom in the early part of this decade. In the long-term, investing in real estate helps investors diversify their portfolio and, thus, reduce risk. Diversifying away from the U.S. markets makes even more sense after the [...]

By: Free Finance Magazines

Free Finance Magazines — Sat, 03 May 2008 00:29:55 +0000

[...] have used materials from the magazine in my posts (one post discussed mutual fund costs and one on global REIT). In my opinion, Financial Planning is worth a [...]

By: The Sunday Review #44

The Sunday Review #44 — Mon, 29 Oct 2007 03:16:47 +0000

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By: Saturday Finance Findings for October 27th : Generation X Finance

Saturday Finance Findings for October 27th : Generation X Finance — Sat, 27 Oct 2007 16:53:31 +0000

[...] Global REIT Provides Weak Correlation – Have a bad feeling about the domestic real estate market? Thanks to weak correlation abroad, you can diversify your real estate portfolio with ease. [...]

By: Presh Talwalkar

Presh Talwalkar — Fri, 26 Oct 2007 21:13:21 +0000

Sun: Thanks for the reply. I guess this is a point of theory since perfectly negatively correlated assets don’t exist. Plus, they would not do much good since arbitrage would make a portfolio of them return the risk-free rate. So yes, I ultimately agree that high returning investments with as weak correlations are the way to do.

By: Sun

Sun — Fri, 26 Oct 2007 20:55:16 +0000

Presh: Yes, in theory a correlation of -1 would be perfect. It means the two will go the opposite directions every time by the same amount. But I think that may not be what we want when it comes investment. If that’s the case, then at the end we will have no gain and no loss either. With the a correlation of 0, the two will go totally random. When one goes up, the other would go either up or down, but has nothing to do with the movement of the first one. I think this is what we want to have for our investments

By: Presh Talwalkar

Presh Talwalkar — Wed, 24 Oct 2007 21:52:55 +0000

Regarding, “To minimize the risk, we want asset classes in a portfolio to have weak correlations (it would be perfect if two asset classes have 0 correction, but that’s unlikely in real life).”

I really enjoy the technical analysis on this blog, but just to be nit-picky, isn’t a perfectly negative correlation of -1 the best in theory?

http://www.icmarc.org/xp/rc/marketview/chart/1999/19990813imperfectcorrelation.html

By: shadox

shadox — Wed, 24 Oct 2007 03:34:12 +0000

I looked at some of these a while back. DRW and RWX both have a fairly limited history, which bothered me a bit. You are absolultely right about the low correlation. I recently had a post on the subject of low correlation asset classes. Turns out that global bonds and commodities are two other asset classes which consistently exhibit low correlations vs. the S&P.