Risk and correlation

How it works

Daily returns are the change in each company's dividend-adjusted close, as log returns, over the window you choose. Correlation measures how closely two companies' daily returns move together, from +1 (in step) to −1 (opposite ways); it is measured on the sessions every company you picked traded. Volatility is the standard deviation of a company's daily returns over its own sessions, annualised by the square root of 252 trading days. Beta is the company's return sensitivity to its benchmark (the S&P 500 for the US, the STOXX Europe 600 for Europe, each Asian market's main index): a beta of 1.2 means it has moved 1.2% for each 1% of the index, on average. The portfolio's volatility combines each company's volatility, its weight and every correlation: it sits below the weighted average of the volatilities unless every pair moves in perfect step, and the gap is the diversification benefit.

Assumptions

Past returns over the window, which say nothing certain about the next one. Correlations between markets in different time zones are understated, because their sessions close hours apart: Tokyo's close cannot react to New York's afternoon until the next day. Prices in each company's own currency, so currency moves are not included. Weights are held constant (rebalanced daily). Mainland Chinese companies are measured against the Shanghai Composite, because Yahoo Finance keeps no history for the CSI 300.

For information and education only. Not investment advice.