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Outperform Stock Market With Lower Risk

Now consider the correlation matrix below. In a world where correlations greater than 0.80 are the norm for stocks and commodities, the highest correlation between growth-oriented ETFs in this portfolio is less than 0.60.

I am not suggesting that you jettison your holdings. For one thing, keeping up with correlations can be more difficult than keeping up with the Kardashians. Secondly, beating the market with seven ETFs is a foolhardy financial pursuit, even when your foresight has a history of succeeding. (Review my November 2010 article: "How My 7 ETFs Trounced The S&P 500."

That said, I encourage investors to check correlation coefficients. Make sure high-positive or high-negative correlations are in check, either by committing to stop-loss limit orders on each investment or by making a few adjustments to some of the positions in your account(s).

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Stock quotes in this article: BAB, PCY, DJP, XLU, XBI, EWL, EWT 
Disclosure statement: ETF Expert is a Web site that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert Web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

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