Before buying it, she wants to do some analysis and look at stocks that will help her diversify her portfolio and, most importantly, not increase the systematic risk of her portfolio. Her portfolio mainly tracks the stocks from the S&P 500. ![]() Lara is an investor looking to add shares of Amazon or Apple to her portfolio. Both of these are considered as negatively correlated assets. The manager can take offsetting positions in this case, for example, he can take put options of the stocks of the financial services or even sell call options. Negative correlation can also be used for hedging purposes which in turn mitigates the risk. If he is not keen on selling even a part of his portfolio, the portfolio manager can also hedge his risk. The portfolio manager then sells a portion of his investments in the financial sector and buys gold to take advantage of the negative correlation. Assets that have a negative correlation with stocks are gold. So he thinks of using assets with a negative correlation with the financial industries. He is not looking at selling these stocks and wants to keep them as per his client’s long-term goal.īut he realizes that he has not diversified his portfolio and has not managed any risk. According to his analysis, the shares are going to tumble further and might also lead to a crash. But in the past few months, the prices of these stocks have been falling due to changes made by the Fed. ![]() Let’s assume a portfolio manager invests in the financial industry sector. ![]() Examples of Negative Correlation are as Follows: Negative Correlation – Example #1
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |