One bad day for the market and your whole portfolio tanks? Here's what you can do to spread the risk — SkimNews
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- WhiteOak Capital Mutual Fund study measured correlation between Indian equity, gold, debt, and US equity to help investors evaluate whether their assets actually behave differently in market downturns.
- Indian equity and US equity share the highest correlation among the four asset classes at 0.37, meaning they tend to move in the same direction during broad equity sell-offs.
- Indian equity and gold show the lowest correlation at -0.43, the strongest inverse relationship in the study, indicating they historically tend to move in opposite directions.
- Gold and US equity have nearly zero correlation at 0.01, meaning a fall in US stocks provides little historical indication of what gold will do.
- Debt shows mild negative correlation with US equity (-0.14) and Indian equity (-0.06), and a 0.1 correlation with gold.
- Correlation values range from +1 to -1, where +1 means assets move in the same direction, -1 means opposite directions, and values near zero indicate little relationship.
- An Indian equity-only portfolio gains diversification benefits by adding gold and debt, while debt-heavy portfolios can add Indian or US equity — both with historically negative correlation to debt.
Why it matters: Investors who assumed holding Indian plus US equities gave them geographic diversification are confronting data showing those two asset classes correlate at 0.37 — the highest in the study — meaning global sell-offs can drag both down together. The 0.80-point gap between that pair and the Indian equity-gold pair (-0.43) quantifies how much more protective gold actually is during Indian equity declines, giving retail investors a concrete rationale for rebalancing toward assets with proven independent behavior.
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