Daily Archives: Nov 6, 2018 at 07:18 am EST

Profiling Factor ETF Correlations

Slicing and dicing the US equity market into factor buckets is, at its core, an effort to enhance return by engineering more control over risk management. A key part of this framework is recognizing that risk and return for the stock market overall is a byproduct of multiple factors, such as shares trading at low valuations or posting strong price momentum in the recent past. In turn, it’s reasonable to assume that a set of factor ETFs will exhibit relatively low correlations with one another, offering a degree of diversification otherwise unavailable via standard portfolio designs for capturing equity beta. To test that assumption, let’s review the return correlations for a broad set of factor ETFs in recent history.
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Macro Briefing: 6 November 2018

Democrats appear to have an edge in today’s election: FiveThirtyEight
Facebook discloses possible election meddling by Russia: USA Today
Trump’s decision to deploy troops to border will cost $200M-$300M: CNN
Supreme Court refuses to hear appeal over net neutrality rules: The Hill
China’s VP: China is ready to resolve trade dispute with US: CNBC
Services PMI for US reflects “strong” business activity for Oct: IHS Markit
US ISM Non-Mfg Index for Oct reflects “strong growth”: CNBC