Asset performance—correlations

Source: Wells Fargo Investment Institute. Data from January 1, 2002 to December 31, 2021. For illustrative purposes only. Correlation measures the degree to which asset classes move in sync; it does not measure the magnitude of that movement. There is no guarantee that future correlations between the Indexes will remain the same. Index returns do not represent investment performance or the results of actual trading. Index returns reflect general market results, assume the reinvestment of dividends and other distributions and do not reflect deduction for fees, expenses or taxes applicable to an actual investment. Unlike most asset class Indexes, HFR Index returns are net of all fees. Because the HFR Indexes are calculated based on information that is voluntarily provided, actual returns may be lower than those reported. An index is unmanaged and not available for direct investment. Index correlations represent past performance. Past performance is no guarantee of future results. See “Index Definitions and Asset Class Risk Disclosures” link above for risks and index definitions.

Indexes in order represented by Bloomberg U.S. Treasury Bill 1 (–3 Month) Index, Bloomberg U.S. Aggregate Bond Index, Bloomberg U.S. Municipal Index, Bloomberg U.S. Corporate High Yield Bond Index, Bloomberg High Yield Muni Index, JPM GBI Global Ex U.S. Index, JPM EMBI Global Index, S&P 500 Index, Russell Midcap Index, Russell 2000 Index,, MSCI EAFE Index, MSCI EM Index, FTSE EPRA/NAREIT Developed Index, Bloomberg Commodity Index, HFRI Fund Weighted Index. IG = investment grade. FI = fixed income. LC = large cap. MC = mid cap. SC = small cap. HY = high yield. DM = developed market. EM = emerging market.

Key Takeaways

  • Correlations can play an important role in portfolio diversification. In addition to risk and return, correlations are primary components of portfolio construction.
  • Investing in asset classes with low or negative correlation to equities can achieve diversification and reduce overall portfolio risk.