Insights on ETF correlations

Updated: Aug 4

Image courtesy of xkcd -

We recently looked at ETF holdings data and found some interesting insights under the hood (see Digging deepr into ETF holdings and ETF Holdings - Diving in even further.... The holdings data is quite telling in that it can show us how similar 2 different ETFs are in terms of what they hold as well how concentrated some ETFs are versus others.

Equally important, the correlation of returns that different ETFs have with one another can yield further interesting insights that investors may want to be aware of. For holders of ETFs they are likely already interested in ETF benefits like diversification and low-cost fees. If they have a pair of ETFs in their portfolio that have historically performed very similarly (e.g. are correlated), the benefits of diversification may be wiped out because when one ETF does poorly, the other has likely done poorly as well.

This article is not about the pros and cons of lowering the correlation of your portfolio (though there are great links on that - see end of this article). We do, however, look at a variety of interesting correlation pairs that investors may not have known about so strap yourself in and get ready for the chart-fest!

Note: the returns used here are the 1-month price returns reported by ASX and Chi-X which assume dividends are reinvested.