Page 148 - A Canuck's Guide to Financial Literacy 2020

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Negative correlation is when two securities would move in opposite direction. For example,
when a recession hits, gold would go up, financials would go down. These types of
investments would have negative correlation of -1.

Negatively Correlated Securities

There are various strategies that one can embrace in order to diversify their portfolios.
These strategies can be used in combination. You may diversify your portfolio via:

▪ Asset Class – having stocks and fixed income in your portfolio will diversify your
portfolio
▪ Company Size – large cap companies are more stable than small cap companies.
▪ Industry – adding companies in various industry will allow your portfolio to withstand
business cycles
▪ Geographic – investing in different countries can reduce the risk of your portfolio
▪ Management Style – depending on the portfolio manager’s mandate, diversification
can be achieved. (Value vs. Growth)
▪ Maturity – Bond laddering or GIC ladder can add diversification to a portfolio. Buying
fixed income instruments at different intervals
▪ Credit – Including companies with strong credit rating and low credit rating such as
high yield bond.