Index Fund Correlation

This index fund correlation matrix shows the index correlation between all the major indexes we use to design an asset allocation. Correlation is how similar or dissimilar two investments have performed over the past. If you see a number of 1 it means that the assets have performed identically. When you see a number of -1 it means that the index fund correlation has been exactly opposite. Ideally a portfolio would be made up of different index funds that do not correlate. In this instance one portion of the portfolio would be doing well while another was underperforming. The line of 1's that go clear across the chart is comparing two of the same index. Of course when you try to use two index's it results in a perfectly correlated asset and therefore results in a 1.

Index Correlation 1972-2007
	COMM	D10	EAFE	EAFE85	EM	EUR	IVAL	LCB	LCG	LCV	LTGB	MCB	MM	PAC	REIT	SCB	SCG	SCV	STT	TBILL	TBM	TIPS	TSM
COMM	1	-0.18	-0.11	-0.08	0.04	-0.06	-0.11	-0.17	-0.17	-0.14	-0.12	-0.18	-0.19	-0	-0.15	-0.2	-0.12	-0.25	-0.29	-0.14	-0.23	-0.15	-0.17
D10	-0.18	1	0.36	0.38	0.4	0.41	0.36	0.61	0.54	0.7	0.09	0.83	-0.16	0.22	0.7	0.92	0.89	0.89	0.01	0.04	0.13	0.22	0.69
EAFE	-0.11	0.36	1	0.99	0.78	0.85	0.99	0.58	0.53	0.55	0.09	0.48	-0.12	0.86	0.28	0.44	0.46	0.34	-0.11	-0.04	-0.02	0.37	0.59
EAFE85	-0.08	0.38	0.99	1	0.85	0.84	0.98	0.57	0.52	0.54	0.07	0.48	-0.13	0.86	0.29	0.46	0.48	0.35	-0.13	-0.06	-0.03	0.39	0.58
EM	0.04	0.4	0.78	0.85	1	0.65	0.8	0.42	0.39	0.39	-0.02	0.4	-0.16	0.73	0.26	0.45	0.47	0.32	-0.19	-0.1	-0.07	0.42	0.46
EUR	-0.06	0.41	0.85	0.84	0.65	1	0.83	0.71	0.66	0.66	0.23	0.59	-0.1	0.5	0.31	0.51	0.54	0.42	-0.07	0.1	0.14	0.24	0.7
IVAL	-0.11	0.36	0.99	0.98	0.8	0.83	1	0.52	0.46	0.52	0.09	0.46	-0.12	0.84	0.28	0.43	0.45	0.35	-0.1	-0.04	-0.03	0.35	0.53
LCB	-0.17	0.61	0.58	0.57	0.42	0.71	0.52	1	0.97	0.9	0.28	0.86	0.05	0.36	0.46	0.75	0.76	0.64	0.12	0.21	0.31	0.08	0.99
LCG	-0.17	0.54	0.53	0.52	0.39	0.66	0.46	0.97	1	0.78	0.21	0.78	0.05	0.33	0.31	0.68	0.73	0.51	0.09	0.16	0.25	0.07	0.95
LCV	-0.14	0.7	0.55	0.54	0.39	0.66	0.52	0.9	0.78	1	0.3	0.92	0.02	0.34	0.63	0.82	0.8	0.81	0.11	0.22	0.32	0.09	0.91
LTGB	-0.12	0.09	0.09	0.07	-0.02	0.23	0.09	0.28	0.21	0.3	1	0.31	0.05	-0.06	0.17	0.12	0.13	0.22	0.56	0.95	0.91	-0.05	0.25
MCB	-0.18	0.83	0.48	0.48	0.4	0.59	0.46	0.86	0.78	0.92	0.31	1	0.01	0.27	0.7	0.92	0.93	0.89	0.15	0.24	0.34	0.2	0.9
MM	-0.19	-0.16	-0.12	-0.13	-0.16	-0.1	-0.12	0.05	0.05	0.02	0.05	0.01	1	-0.11	-0.06	0	0	0.03	0.76	0.27	0.38	0.03	0.04
PAC	-0	0.22	0.86	0.86	0.73	0.5	0.84	0.36	0.33	0.34	-0.06	0.27	-0.11	1	0.16	0.28	0.28	0.17	-0.14	-0.16	-0.15	0.27	0.37
REIT	-0.15	0.7	0.28	0.29	0.26	0.31	0.28	0.46	0.31	0.63	0.17	0.7	-0.06	0.16	1	0.74	0.67	0.84	0.08	0.12	0.22	0.14	0.52
SCB	-0.2	0.92	0.44	0.46	0.45	0.51	0.43	0.75	0.68	0.82	0.12	0.92	0	0.28	0.74	1	0.96	0.93	0.07	0.07	0.19	0.18	0.82
SCG	-0.12	0.89	0.46	0.48	0.47	0.54	0.45	0.76	0.73	0.8	0.13	0.93	0	0.28	0.67	0.96	1	0.85	0.08	0.09	0.19	0.23	0.83
SCV	-0.25	0.89	0.34	0.35	0.32	0.42	0.35	0.64	0.51	0.81	0.22	0.89	0.03	0.17	0.84	0.93	0.85	1	0.15	0.18	0.3	0.18	0.71
STT	-0.29	0.01	-0.11	-0.13	-0.19	-0.07	-0.1	0.12	0.09	0.11	0.56	0.15	0.76	-0.14	0.08	0.07	0.08	0.15	1	0.75	0.81	0.06	0.11
TBILL	-0.14	0.04	-0.04	-0.06	-0.1	0.1	-0.04	0.21	0.16	0.22	0.95	0.24	0.27	-0.16	0.12	0.07	0.09	0.18	0.75	1	0.97	-0.03	0.18
TBM	-0.23	0.13	-0.02	-0.03	-0.07	0.14	-0.03	0.31	0.25	0.32	0.91	0.34	0.38	-0.15	0.22	0.19	0.19	0.3	0.81	0.97	1	-0.02	0.29
TIPS	-0.15	0.22	0.37	0.39	0.42	0.24	0.35	0.08	0.07	0.09	-0.05	0.2	0.03	0.27	0.14	0.18	0.23	0.18	0.06	-0.03	-0.02	1	0.12
TSM	-0.17	0.69	0.59	0.58	0.46	0.7	0.53	0.99	0.95	0.91	0.25	0.9	0.04	0.37	0.52	0.82	0.83	0.71	0.11	0.18	0.29	0.12	1

You can download the correlation spreadsheet here: Index Fund Correlation Matrix

Chart Key

COMM - Commodities
D10 - Micro Cap
EAFE - International Developed
EAFE85 - Total International
EM - Emerging Market
EUR - International Europe
IVAL - International Value
LCB - Large Cap Blend
LCG - Large Cap Growth
LCV - Large Cap Value
LTGB - Long Term Government Bond
MCB - Mid Cap Blend
MM - Money Market
PAC - International Pacific
REIT - Real Estate Investment Trust
SCB - Small Cap Blend
SCG - Small Cap Growth
SCV - Small Cap Value
STT - 2 Year ST Treasury
TBILL - 5 Year T-Bills
TBM - Total Bond Market
TIPS - Synthetic Tips
TSM - Total Stock Market