CORRELATION ANALYSIS
Diversification only works when strategies disagree at the right times.
BestFolio shows the rolling correlation matrix between strategies, including in the regimes that matter: 2008, 2020 March, 2022 stocks-and-bonds. Pick blend candidates that actually move differently when you need them to.
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BestFolio Correlations: full N×N correlation matrix with rolling correlation chart against a chosen reference entity.
- Rolling correlation
- Pearson correlation over rolling 12-month, 36-month, and full-window periods.
- Regime-conditioned
- View correlations during drawdowns, bull markets, and named historical episodes.
- Pairwise and matrix
- Pick any subset for full N×N matrix or any pair for the rolling chart.
What it is
Correlation between strategies isn't a single number. Two strategies can be uncorrelated on average across 30 years, then move together in 2008. The correlation analysis view computes correlations across multiple windows and regimes, so you can spot the strategies that maintain low correlation in the moments that matter (deep drawdowns, recessions, regime breaks) versus the strategies that look diversified on average but converge to 1 when stress hits.
Free vs Pro
Free
- ✓Correlation matrix for the 6 free strategies
- ✓Full-window Pearson correlation
- ✓Pairwise rolling chart
Pro
- ✓Correlation matrix across all 47+ strategies
- ✓Regime-conditioned correlations (drawdown / recession / recovery)
- ✓Multiple time-window correlations on one chart
- ✓Cluster grouping (find strategies with similar behavior)
- ✓Correlation to user-defined benchmarks
Strategies that use this
HAA (Hybrid Asset Allocation)
Tactical anchor for diversification analysis.
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Permanent Portfolio
Static anchor; low correlation to most tactical.
View strategy →
GEM (Global Equities Momentum)
Pure-equity tactical; tests correlation in equity drawdowns.
View strategy →
RP Gold+SCV
Risk parity; different driver from momentum strategies.
View strategy →
Paired Switching
Two-asset tactical; useful diversification candidate.
View strategy →
Golden Butterfly
Balanced static; anchor for static / tactical comparison.
View strategy →
Frequently asked questions
Why does correlation in stress matter more than average correlation?+
Diversification benefits depend on strategies disagreeing when you're losing money. Average correlation hides the moments when correlations spike. A pair with 0.2 average correlation that goes to 0.9 in March 2020 isn't actually diversified for crash protection.
What is regime-conditioned correlation?+
Correlation computed only on subsets of months that match a regime: drawdown periods, recession periods, recovery periods, named historical episodes. Lets you see which strategies stay uncorrelated in the regime you care about.
How does cluster grouping work?+
BestFolio runs hierarchical clustering on the correlation matrix and groups strategies that move similarly. Useful for picking blend components from different clusters rather than three strategies that all behave like momentum.
Are correlations free or Pro?+
Pairwise correlations between free strategies are free. The full N×N matrix, regime conditioning, and clustering are Pro.
What window length is best?+
Depends on the question. 12-month rolling captures recent regime shifts. 36-month rolling smooths out noise. Full-window is the long-run average. Look at all three; if they disagree, the disagreement is the signal.
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