What are uncorrelated assets?

S

SteveS

Member
This came from reading today's item from Ainslie Bullion.

I understand what the term means, but I'm having trouble identifying truly uncorrelated investments. I could accept that gold and stocks are uncorrelated for the sake of argument, though they aren't completely decoupled, are they?

Are there any investments that are uncorrelated, really? I don't just mean in a negative sense, because if asset A tends to rise when asset B falls, that's still a correlation.
 
I don't think it's meant as a pure binary term. It's really about how much correlation there is between two assets.
e.g.
Gold price and gold stocks would be highly correlated.
Gold price and general mining stocks still correlated but less so.
Gold price and general stocks less correlated again, many (most?) might say uncorrelated.
Gold price and LEGO sets or collectable MY Little Pony's have hardly any correlation, so you'd definitely call them uncorrelated, but as you note it's not zero.
etc
 
From an interweb site and therefore gospel:


"While gold has an inverse relationship with the dollar, stocks markets also have a deep connection to the metal. Investors commonly perceive gold as a haven in the event of a severe stock market downturn. Presumably, when we experience a global market decline, stocks and currencies move downward. Some investments become less desirable and investors assume gold will give them some breathing room. However, this does not always hold true, and investors can get burnt.

However, interestingly, gold's 12-month correlation with the S&P 500 over the past 45 years averages zero. So, whether gold is a haven asset or just a teaser remains a mystery."
 
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