P 500 down 9.1 percent while the Russell 2000 was off just 3
percent. They did not move in opposite directions, but that is often
what a low correlation actually is: not a rise versus a fall, but a
much smaller rise or a much smaller decline. These different paces
in the same direction change the risk of your portfolio. That is, it
is better to have half your portfolio falling 3 percent while the rest
is dropping 9.1 percent, which translates into a decline in return
of 6.1 percent, instead of all of it plunging 9.1 percent.
percent. They did not move in opposite directions, but that is often
what a low correlation actually is: not a rise versus a fall, but a
much smaller rise or a much smaller decline. These different paces
in the same direction change the risk of your portfolio. That is, it
is better to have half your portfolio falling 3 percent while the rest
is dropping 9.1 percent, which translates into a decline in return
of 6.1 percent, instead of all of it plunging 9.1 percent.
No comments:
Post a Comment