How To Check If Your Portfolio Is Diversified Using Correlation + Excel - Stocks, Bonds, S&P500

Investing long term? Ensure your investment choices aren't 'over-diversified'. Let's examine the holdings in a popular robo advisor + calculate correlation using Excel.

Intro: (00:00)
Correlation Definition: (00:47)
Correlation vs. Beta: (01:16)
Correlations of an Index Investing Portfolio: (01:55)
Correlations of Tactile Trade Strategies (03:38)
Calculate Correlations in Excel: (05:00)
Conclusion: (09:13)

Other Risk Adjusted Return Videos:
Part 3 - Correlation Coefficient

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[pvmoore]

Perfect balance of the technical calculation and practical use and application. Not too little, ... not too much, ... not too long. Thanks for the content. Subscribed.

[freddyradena]

Thank you Eli for this amazing video. This channel is so underrated. I hope your channel gets the recognition that you deserve! Happy holidays

[kevinlaffey]

What are your thoughts on using the natural log of returns (ln(Cl/Cl-1)) as opposed to simple returns? The consensus in the majority of the material seems to recommend using log returns. You will see noticeable distortions at very large positive or negative values. Case in point: NVDA’s recent post earnings move. And simple returns will be actual experience of the portfolio. Thanks!

[XqDonSouljapX]

Amazing video! Thank you for sharing this. I was wondering where I would get datasets like yours from to run the correlation between different ETF’s?

[hawley]

How do you calculate the correlation for an entire portfolio with 7 stocks/ETF's? Is it possible to get one coefficient for the entire portfolio?

[tonioleeps]

where did you get the price data to make the returns columns?

[nicoqueijo]

Do you personally have a certain threshold in which you'll only hold one asset if they are correlated above this figure?

[nicoqueijo]

Does correlation have a lower bound at -100%? And would this mean they move together identically but in opposite directions? 100% correlation would basically be two overlapping lines (I think, correct me if I'm wrong) but how would 0% correlation look?

[nicoqueijo]

After constructing the correlation matrix, how can you conclude the correlation of your portfolio with a single figure? Is it safe to take the average of the entire matrix? (Assuming equal weights in each position)

[ericataylor]

Thx for this! I sent you a DM with a question