Why is asset correlation important?

The asset correlation is one of the measures to which ISEC Wealth Management attributes importance while forming a portfolio.

Correlation is a worldwide measure of how strong the relationship between 2 or more assets is and how much alike they behave. In simple words, highly positively correlated assets with a correlation coefficient close to 1 react almost identically to market condition changes and both go up or down with the same magnitude. Highly negatively correlated assets with a correlation coefficient close to -1 behave differently. When the first one goes up, the second one will go down with the same magnitude.

The idea of a balanced portfolio that ISEC Wealth Management is seeking is to combine assets with low correlation to manage risks and maximize return.

Risk Warning: The information in this article is presented for general information and shall be treated as a marketing communication only.  This analysis is not a recommendation to sell or buy any instrument.  Investing in financial instruments involves a high degree of risk and may not be suitable for all investors. Trading in financial instruments can result in both an increase and a decrease in capital. Please refer to our Risk Disclosure available on our web site for further information.

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