Friday, September 24, 2010

Asset Allocation and Correlation

Sector Timing Report Market Timing
Take Advantage of the Power Asset Allocation and Correlation Can Bring to Your Portfolio


"These two concepts are the holy grail of successful long-term investing as they will determine 91.3% of your portfolio return over the long run!"

Could This Be the Holy Grail?

* If you knew of a strategy that could determine 91.3% of your investing success and was easy to follow would you use it?

* What if you could also lower the risk of your portfolio at the same time with a second easy to follow strategy?

PART 1: ASSET ALLOCATION

"91.3 percent of variability in a portfolios' investment return is due to allocation of assets" - Ibbotson & Associates 10 year study of 91 large pension fund results over a 10 year period.

The Biggest Decision You Make

The asset classes you select to include within your portfolio is the single LARGEST investment decision you will ever make as it will account for 91.3% of your return over time.

What is Asset Allocation?

In a nutshell, it is the process of dividing your portfolio
investments across different asset classes to optimize the
available return for a given level of risk. The best asset
classes to combine in a portfolio all have a low correlation
with each other.

Why the Average Investor Fails at Investing

* inadequate asset allocation

* always chasing last years hot performers

* unaware of the psychological pitfalls of investing

* decisions made on emotions that lack a disciplined strategy

PART 2: CORRELATION

"The average correlation among industry sectors is 66% LOWER than that of traditional size and style breakouts" - 2002 study by Ibbotson and Associates Ltd.

Low Correlated Assets Reduce Risk

The best asset classes to combine in a portfolio should all have a low correlation with each other. How you define a distinct asset class really should be based on a review of its correlation. The correlation scale ranges from 0 to 1, where 0 indicates no correlation and 1 indicates perfect correlation.

Here are some examples:

* Russell 3000 index and the S&P500 index have a correlation of 99% (almost identical movement)

* the average correlation among traditional size and style breakouts of mutual funds is 90%

* the average correlation among sectors is only 31%

How You Can Maximize the Power of Asset Allocation While Minimizing Correlation Risk

This unique approach to asset allocation within the Sector Timing Report creates a ranking list of the top performing asset classes and sectors each month. Our primary goal is to identify the top performing assets within each category or grouping of exchange traded funds.

This allows our users to construct a well-diversified portfolio, while at the same time identifying what ETFs within each category are performing best. This also allows our users to construct a portfolio containing top performing assets with lower correlation risks, and have the ability to diversify across multiple asset classes.

Click here for the Sector Timing Report