What is Portfolio Correlation?

Portfolio correlation is a measure of how different assets move in relation to each other. In simple words, portfolio correlation is calculated considering how the NAV values for each scheme have changed with respect to other schemes during a given time period. It signifies the degree of interdependence between these assets. The correlation coefficient ranges from -1 to 1. We’ll cover this in detail at the end.


Why is Portfolio Correlation important?

Understanding correlation helps brokers determine if a portfolio is overly concentrated in similar schemes, which can amplify risk during market downturns. A well-balanced portfolio should include schemes with low or negative correlation to reduce overall volatility and improve stability.


How to Use the Portfolio Correlation Feature?


Accessing Portfolio Correlation


Go to Broker Dashboard > Utilities > Scheme Compare


On the Scheme Compare screen, you will see multiple options. Select ‘Portfolio Correlation’.








Once you access the feature, you have two ways to analyze correlation:


  1. Compare Market Schemes

  2. Analyze Client Portfolios


  1. Compare Market Schemes


This helps in identifying how different market schemes relate to each other before making an investment decision.


  • On the left side, filter schemes by Category & Sub-Category.

  • A list of schemes matching your filters will appear. Select the ones you want to compare by ticking them.

  • Click the blue arrow icon to move them to the selection area.

  • The selected schemes will now appear on the right side.

  • At the bottom left, choose a time period for correlation analysis.

  • Click ‘Show’, and the Portfolio Correlation Matrix will appear.






  1. Analyze Client Portfolios


This helps in understanding the correlation between a client’s existing investments.


  • On the right side, select schemes based on your clients’ investments.

  • Search by Family Head, Client, or a Scheme Model.

  • If you select a client, a list of their invested schemes will appear.

  • Select a time period and click ‘Show’.

  • The Portfolio Correlation Matrix will be displayed.




Additional Features


  1. Add Benchmarks: You can include benchmarks in your correlation analysis. Available benchmarks: Equity, Debt, Gilt, and Scheme-wise.

  2. Save Scheme Models: You can save selected schemes in a model for future reference.



Understanding the Portfolio Correlation Matrix


The Portfolio Correlation Matrix shows how schemes move relative to each other, assigning a value from -1 to +1 to indicate their relationship.


How to Read the Matrix:

  • Each row and column corresponds to a selected scheme.

  • The intersection of a row and column shows the correlation coefficient between two schemes.

  • The diagonal values are always 1 because a scheme is perfectly correlated with itself.

Interpreting the Values:


  • -1.00 to -0.40 (Excellent Diversification): 

Strong negative correlation—when one scheme rises, the other falls.


  • -0.40 to 0.00 (Good Diversification): 

Slight negative correlation—moderate risk balancing.


  • 0.00 to 0.60 (Moderate Diversification): 

Mild positive correlation—schemes may move in the same direction but not in sync.


  • 0.60 to 1.00 (Poor Diversification): 

Strong positive correlation—schemes tend to move together, reducing diversification benefits.


  • 1.00 (No Diversification): 

Schemes are perfectly correlated, moving identically.


   

If you face any issues, feel free to reach out to our support team or raise a ticket.