Chinese Asset Price Correlation… or (Hopefully) Lack Thereof


Perhaps the main goal of an individual or organization when it comes to putting together a balanced portfolio that is robust enough to withstand a wide range of shocks needs to revolve around not making the mistake of being a proverbial one trick pony by exclusively having exposure to assets that are highly correlated.

To put it differently, what is the point of diversification if the (diverse, indeed, but to what effect?) assets that you have exposure to are highly correlated?

For example, if you have built a portfolio of strongly risk-on assets and a financial crisis starts, the severely sub-optimal diversification you engaged in and which wrongly provided mental comfort will be of little real-world use in light of the fact that your assets will go down in value simultaneously. When times are good, few people pay attention to this dimension and actually pat themselves on the back for their amazing risk-on portfolio. After all, the exact opposite is valid during periods of boom, with portfolios that consist of highly correlated risk-on assets doing better than properly diversified portfolios.

But, make no mistake, landing on your feet is an underrated goal.

Pretty much any investor with a decent verifiable track record and who has exhibited staying power will confirm that your number one goal needs to be represented by capital preservation, think of it as a variation of the “it’s easier to keep than make money” adage. During roaring bull markets, everyone ends up thinking they are absolutely brilliant investors but when things head south, paper profits can be remarkably easily wiped away.

Again: does your portfolio enable you to land on your feet under a wide range of scenarios?

The name of the game, in the opinion of the team at least, is setting realistic goals. As much as we would love to promise our clients that we have some kind of a secret recipe that enables us to create strategies which facilitate career-defining profits no matter what happens, the truth is that… well, there is no such thing.

Therefore, trade-offs are a vital part of the equation.

It takes a significant “dose” of wisdom/maturity to let’s say see everyone around you going all-in on risk-on assets during economic boom periods, while you invest a lot more time/energy than them looking for uncorrelated/complementary assets so as to build a robust portfolio. To make matters worse, as mentioned previously, your robust portfolio will initially under-perform the reckless portfolios built by many of your peers, which is once again a test of wisdom/maturity.

It ultimately all boils down to your timeframe preference.

If you embrace an exclusively short-term-oriented mindset, the temptation to simply go all-in by riding whichever trend is currently manifesting itself to the fullest is hard to resist but the longer-term your view becomes, the more sense it makes to (as corny and cliché as this undoubtedly sounds) see things in a “marathon” rather than “sprint” manner.

Chinese assets enable you to maximize results when it comes to the latter, by oftentimes representing a relatively uncorrelated option which adds value to each and every portfolio. Needless to say, investing in them also involves a willingness to exit your proverbial intellectual comfort zone and wander into the unknown or “Wild West” dimension. contains a remarkably high number of articles which make it clear that without putting in the required work and exiting various comfort zones, your experience as a Chinese asset investor will be anything but pleasant. There is a reason why we cover anything from geopolitics (Chinese relations with pretty much any imaginable trading partner) to culture-related aspects (Confucianism, Daoism, Buddhism, etc.) on our website, as our “New Here” section makes clear: we do it because being thorough is the only way to maximize results.

But in the end, we believe it will be more than worth it.

One interesting question emerges, however: why go through the trouble of building a meaningfully diversified portfolio when you can “simply” ride the current trend in an all-in manner and then quickly sell once the tide turns?

Once again, as amazing as this may sound in theory, this scenario brings us right back to the “everyone is a brilliant trader in a bull market” narrative. History may not repeat itself, but it sure does tend to rhyme, cycle after cycle, with overly-optimistic traders who knew they were partaking in a game of musical chairs but convinced they will exit while seats are still available ultimately losing their shirts. As pessimistic as it may sound, we firmly believe strategies which revolve around you as a trader having some kind of a magical ability to predict the future are doomed right from the beginning.

Hint: you do not, nor does anyone else.

Instead, there is no shortage of charlatans who will do their best to trick you into thinking that they can, in an effort to part you from your hard-earned money. Do not make the mistake of letting reckless gullibility get the best of you… just don’t. prefers to do the exact opposite, even if it would be the easiest thing in the world for us to brand ourselves as perfect gurus who can do no wrong (our team consists of WSJ/USA Today best-selling authors, wildly successful brick and mortar entrepreneurs, accounting experts and so on… unlike your average “guru organization”): we would much rather embrace brutal honesty and explain that we cannot predict the future and instead, choose to simply hedge whenever it makes sense. Should you as a potential client be on the lookout for a team of consultants who are the exact opposite of “yes men” and instead, do not hesitate to share brutal truths with you and/or your organization, the team is looking forward to helping you put together a truly diversified portfolio and is only a message away.

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