Market Measures

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Diversification Options for All Environments

Market Measures

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One of the essential portfolio traits that we are constantly trying to exhibit in our trading is that of diversification. Diversification relies upon trading multiple underlying markets with little to no correlation. This helps our portfolios in trending markets in either direction to guarantee that all of our trades don’t go in the same direction.

Today’s research looks at historical correlations of the S&P 500 to the following markets:

  • Equity Indexes – Dow, Nasdaq, Russell
  • Commodities – Gold, Silver, Crude
  • Currencies/Bonds – Euro, Pound, Treasuries

And we looked at those same relationships when implied volatility was high to see which markets offer the best diversification in any trading environment.

Tom and Tony talk through each relationship before concluding that stocks have a tendency to increase in correlation when IV rises, while metals and currencies supply great diversification options in all environments.

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