hey guys I had a quick question on fixed income and equities...
generally speaking, is it better to have a Fixed Income portfolio that has a low
correlation with equities? and why?
thanks
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yes, helps diversify away unsystematic risk
No you want all your investments to be as correlated AS POSSIBLE. This helps you make tons of money if you're right! Common Sense!
Fixed Income and Equities have very low correlations to one another. Correlation simply measures the degree of linear relationship between two variables i.e. bond and stock returns. If bonds and stocks moved in tandem with each other you'd see high correlation close to 1.00. Stocks are inherently more risky and are more sensitive to economic change.
bonds and equities, on average, have a negative correlation. but I believe many people look at the two asset classes as separate so its often more interesting to look at correlations of different fixed income products within a portfolio.
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