Correlation

What you'll learn

• ✓Read a correlation matrix

Lessons

1. 🪙
   When Stocks Fall, Gold Rises

   Two assets, one dance
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2. The Correlation Coefficient

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3. Reading a Correlation Matrix

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4. When Diversification Fails

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5. Final Boss: Correlation in the Wild

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Sources

All content is drawn from the sources below. We deliberately avoid unverified material.

• Investments, 12th edition (Bodie, Kane, Marcus)
  McGraw Hill · book
  Reference textbook for correlation coefficient definition, scatter-plot interpretation, and typical asset-class correlation ranges (stocks vs. bonds, EM vs. DM).
• Extreme Correlation of International Equity Markets (Longin & Solnik, 2001)
  Journal of Finance · academic
  Foundational study showing that correlations between international equity markets rise sharply during extreme down-moves. Used in lesson 4 and the boss.
  https://onlinelibrary.wiley.com/doi/10.1111/0022-1082.00340
• No Contagion, Only Interdependence: Measuring Stock Market Co-movements (Forbes & Rigobon, 2002)
  Journal of Finance · academic
  Cautions that some of the apparent jump in crisis correlations is a statistical artefact of higher volatility, but agrees that correlations behave differently in crises. Used in lesson 4.
  https://onlinelibrary.wiley.com/doi/10.1111/0022-1082.00494
• How Many Stocks Make a Diversified Portfolio? (Statman, 1987)
  Journal of Financial and Quantitative Analysis · academic
  Classic reference on the diversification benefits of holding many stocks, supporting the prerequisite framing in lesson 1.
• FRED economic data, stock-bond correlation series
  Federal Reserve Bank of St. Louis · institutional
  Underlying return data used to verify the near-zero / slightly negative stock-bond correlation cited in lesson 3.
  https://fred.stlouisfed.org/