Page 90 - Ready Set Retire
P. 90
Stephen J. Kelley
Figure 16: Asset classes within a group of funds.
Notice how over 71% of her holdings were in U.S. and
international large cap stocks. When I pointed that out to her,
she remarked her broker had told her they were uncorrelated
because they were domestic vs. international. So I showed her
the following correlation matrix:
Figure 17: Correlation matrix
To check the correlation of two asset classes, find their
intersection on the chart. U.S. and international large holdings
intersect at the arrow. Notice the correlation is .661. That
means in 66% of the cases, these two asset classes move
together. That is not what we call uncorrelated!
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