The Decline and Fall of Correlation

In the search for the holy grail of portfolio design – robust diversification – it’s tough to beat the classic stock-bond mix. If one side of this asset allocation dance is sliding (or rising), history shows that there’s a good chance the partner will be rising (falling). But is too much of a good thing a problem? The question comes to mind after reviewing a recent paper (“Positively Negative: Stock-Bond Correlation and Its Implications for Investors”), written earlier in the year by analysts at D.E. Shaw, one of the largest quantitative hedge fund managers. After decades of persistently low-but-moderately positive…

Modeling Risk: A Primer

At the core of modern finance theory is a simple but powerful idea: There’s a price tag for earning a higher return – higher risk. Defining risk is a slippery concept, although not for want of trying with an ever-lengthening list of quantitative metrics. But more choices don’t always lead to more clarity. If you ask ten different investors (or money managers) to explain investment risk, you could easily hear ten different answers. This is no trivial point since quantifying risk is essential for managing it, even if the best-laid plans for profiling risk have limits and don’t always unfold…

The content found on this website is for informational purposes only and do not necessarily reflect the opinions or views of The Milwaukee Company or its employees. Nothing presented on this website should be regarded as investment advice or as a solicitation for the purchase or sale of any security or investment or the provision of investment advice.  Visitors to this site should conduct their own independent research before acting on any information found on this site.