How do you effectively diversify your portfolio? Well, you need to understand the mix of asset classes you want to put into it. Consequently, you need to understand the correlation between those asset classes to get the perfect mix.

Portfolio Diversification refers to the spreading of our investment funds in various assets for reducing overall risk. The modern portfolio theorist recommends that an investor should measure the correlation coefficients between the various assets’ returns for strategically selecting those which are less likely to lose value at the same time. That means we need to determine whether that the prices of the assets tend to move in the same direction or the opposite directions in response to macroeconomic trends

Sounding too heavy for a weekend read? Don’t worry! We’ll break this one down in simple language for you to ace your portfolio mix:

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