You asked, we answered: Gold’s optimal portfolio weight in a higher correlated environment? | Post by Jeremy De Pessemier | Gold Focus blog

What is gold’s optimal weight in a positive bond/equity correlation environment?

The shift in the bond-equity correlation has presented many investors with a fundamental challenge around how to approach diversification and portfolio construction. In fact, amidst this rapidly evolving market backdrop, maintaining a diversified portfolio can feel like chasing a moving target.

Let us now illustrate how this change in correlation results in increased portfolio risk and how, in order to retain the same level of portfolio risk, the optimal allocation to gold needs to rise. Chart 3 outlines a simple hypothetical portfolio made up of three asset classes.  Using just three asset classes helps us isolate the impact from the change in correlations.¹

A mean variance optimisation analysis suggests that, generally speaking, a change in the bond-equity correlation environment from negative to positive results in a deterioration to the…