Written by Raoul Khouri
Updated over a week ago

Rev. Date August 5, 2019

What is the Investment Correlation tool?

The Investment Correlation tool displays the correlation between the returns of the selected investment and those in the organization’s master portfolio.

How are the investments sorted?

The return correlations are sorted from highest to lowest (left to right). If there are more than 25 investments, the remaining investments are not shown.

What does the “Use Residual” toggle do?

By default, the Investment Correlation tool has "Use Residual" turned off. In this state, the correlation displayed is between the absolute returns of the selected investment and the investments in the master portfolio. If "Use Residual" is turned on, the tool uses the Two Sigma Factor Lens to determine the residual returns of the selected investment, as well as the residual returns of the investments in the master portfolio. The tool then displays the correlation between those residual returns.

Source: [TEST] analysis. December 2018.

What does the “Show strategies” checkbox do?

Users can view the correlation of the selected investment’s return with the strategy returns configured in the master portfolio by checking "Show strategies" in the upper right corner of the tool. The strategy names, which are in bold, will be displayed in the resulting correlation table alongside the individual portfolio investments (again, with the top 25 correlations sorted from highest to lowest).

Source: [TEST] analysis. December 2018.

What does the “Currently Analyzing” dropdown menu do?

A user can use the "Currently Analyzing" drop down in the top left of the tool to compare the correlations of the selected investment with only those in a particular strategy of the master portfolio.

Over what time period are the correlations calculated?

The Investment Correlation tool finds the longest overlapping period between the selected investment and those in the organization’s portfolio, and down samples to the lowest frequency. It requires at least 36 data points to run the analysis.

What does the benchmark row represent?

At the top of an investment tearsheet, a user can select a benchmark. In this case, the tool will also display the benchmark’s return correlations with the investments in the master portfolio.

What happens if Relative to Benchmark is toggled on?

In this case, the tool will show how the return of the investment over the selected benchmark compares with the returns of the other investments in the master portfolio over the same benchmark. It makes the most sense to run this type of correlation analysis when all of the investments in the master portfolio or strategy should be measured relative to the same benchmark.
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​This document highlights certain aspects of this feature. As an overview, it does not discuss all material facts or assumptions. Please see Important Disclosure and Disclaimer Information.