Stability of the Pairwise Correlations Hierarchy

In this Diversification Dashboard, we discuss the stability in the hierarchy of correlations. Long-time followers of our dashboards may be familiar with this subject as we have published a dashboard on this very topic five years ago.

As correlations are at the heart of TOBAM’s portfolio construction approach, we decided to provide a refresher on the subject given the various changes in the market environment over the years. This topic is particularly interesting to revisit in the current market environment of the Covid-19 pandemic. The magnitude and speed at which the markets reacted to the crisis provides a real-life stress testing environment based on live data to assess the robustness of some of our old findings.

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