Rev. Date April 30, 2020
What is the Investment Correlation tool?
The Investment Correlation tool displays the correlation between the returns of the selected investment and those in the organization’s master portfolio.
How are the investments sorted?
The return correlations are sorted from highest to lowest (left to right). If there are more than 20 investments, the remaining investments are not shown.
What does the “Use Residual” toggle do?
By default, the Investment Correlation tool has "Use Residual" turned off. In this state, the correlation displayed is between the absolute returns of the selected investment and the investments in the master portfolio. If "Use Residual" is turned on, the tool uses the Two Sigma Factor Lens to determine the residual returns of the selected investment, as well as the residual returns of the investments in the master portfolio. The tool then displays the correlation between those residual returns.
Source: Venn analysis. January 2020.
Over what time period are the correlations calculated?
The Investment Correlation tool finds the longest overlapping period between the selected investment and those in the organization’s portfolio, and down samples to the lowest frequency. It requires at least 12 data points to run the analysis.
What does the benchmark row represent?
At the top of an investment tearsheet, a user can select a benchmark. In this case, the tool will also display the benchmark’s return correlations with the investments in the master portfolio.
What happens if Relative to Benchmark is toggled on?
In this case, the tool will show how the return of the investment over the selected benchmark compares with the returns of the other investments in the master portfolio over the same benchmark. It makes sense to run this type of correlation analysis when all of the investments in the master portfolio or strategy should be measured relative to the same benchmark.
This document highlights certain aspects of this feature. As an overview, it does not discuss all material facts or assumptions. Please see Important Disclosure and Disclaimer Information.