The Matrix

How Do You Increase Portfolio Returns While Decreasing Risk?

The key to accomplishing this goal is constructing a portfolio with uncorrelated investment risks. This can be measured. Asset correlation is a measure of how investments move relative to one another*. When assets move in the same direction at the same time, they are positively correlated. When one asset tends to move up when the other goes down, the two assets are negatively correlated. Correlations are measured on a scale of +1.0 to -1.0, with +1.0 meaning the two assets are 100% correlated, moving together perfectly and -1.0 meaning they move in opposite directions. Correlations near zero mean there is little to no correlation between the assets, which is preferred in investment management since this decreases risk by increasing investment diversification.

High Correlation of Traditional 60:40 portfolio

  • What investors think a ’diversified’ 60:40 portfolio gives them

  • What it really provides from a diversification standpoint

  • The numbers after the asset labels are the correlation of each asset to Large Cap stocks.

    As you can see, from a diversification standpoint, most assets are highly correlated, hence providing low to no diversification.


Since many traditional investments tend to be positively correlated (see the correlation matrices below), exclusive use of them in portfolio design can results in higher-risk portfolios than when including non-correlated investments. Correlations are known to increase during periods of high market volatility, which may lead to large portfolio declines during bear markets. Investments that provide low to no correlation may contribute valuable risk reduction to these portfolios while enhancing overall performance.

Solution — Add True Diversification

Highly Correlated S&P 500 Index Sectors

  • Nearly every sector is highly correlated and therefore offers very minimal risk reduction.
  • The Global Macro Program is non-correlated with all sectors, providing True Diversification

Source: &

Covers period 10/2014 to 5/2021.

By owning assets with a range of correlations to each other, you can maintain relative success in the market—without the steep climbs and deep dips of owning just one or two asset types. Our Global Macro strategy used in the fund is non-correlated to the 11 sectors of the S&P 500, as enumerated in the correlation data matrix above. For example, if you look where the Information Technology sector row intersects with the Consumer Discretionary sector column, you will see a red square with a number close to +1.0, signifying these two sectors are highly correlated with each other, offering little diversification.

GCM Fund seeks to reduce risk and provide ‘True Diversification’

Low/Negative Correlation to Traditional Asset Classes

Expanding on this theme of diversification through non-correlation, we find that the data in the matrix below shows that even the four major stock market indices are highly correlated to one another. The Global Macro strategy provides valuable non-correlation (diversification) when added to traditional portfolios. Harry Markowitz, Nobel Prize laureate and author of Modern Portfolio Theory said, “Diversifying sufficiently among uncorrelated investment risks can reduce portfolio risk toward zero.”

Source: &

Covers period 10/2014 to 5/2021.