38) Measuring Correlation to inform your Portfolio Diversification Strategy

[@leonjbr]

Clear and usefull.Waiting for the next video.

[@jocollo979]

Great to learn more about the portfolio correlation and how to measure it. Wishing to see how this works. Thanks! Cheers!!

[@seanjohnson7145]

Thanks Martyn! legend

[@godfredamoah6297]

Hi Martyn, when estimating the correlation of results from different strategies, do you only consider the negative results? Thus, do you set negative results to 1 and positive results to zero. I suspect that this would generate a more practical view of the correlation among the strategies within the portfolio in periods of distress, which is exactly what diversification is intended to reduce. Thanks!

[@Darwinexchange]

It's very timely that you posted this comment because I have been thinking about this myself over the past week. The way that I was considering this is as follows... If we imagine that there are two strategies that are perfect (this will never happen of course but it helps to inform the thought process). These two perfect strategies will always increase their own equity curves. So, in terms of correlation they would have an extremely high correlation value. But they are both fine to trade together because they don't increase risk, despite the correlation value between them being high. So I agree with you that it might be beneficial to only consider values where one or both of the strategies exhibit a loss. I wouldn't however use the binary method (0's and 1's) that you propose. I'd probably use the actual % change values. Hope this helps. Martyn

[@BennyCJonesMusic]

Great lesson per usual. Just wondering Martyn, and sorry if you explained before, but do you have a separate optimisation per asset or do you prefer to try and keep it more robust by just doing it generally across all assets via WFO period?

[@BennyCJonesMusic]

Per WFO period*