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Q2 2009 Asset Inflation Correlation DatasheetAgriculture commodities: Historically, agricultural stocks have not provide sufficient hedge against inflation because of lack of storability and more or less constant demand (which is not linked directly to level of economic activity unlike other commodities). Also due to supply shocks agricultural commodities have one of the highest volatility (in terms of standard deviation) and lowest Sharpe ratio. In addition agriculture commodities have low correlation with inflation, negative real returns (in almost all sub-periods) and low nominal returns.
Emerging markets, real estate and Gold offer one of the highest real returns in that order. However, lower volatility of commercial real estate sector makes this sector one of the most attractive in terms of risk-reward ratio. Within commercial real estate apartments have one of the highest real returns (after emerging markets) and highest Sharpe ratio amongst all asset class.
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Nominal Return |
Real Return |
Standard deviation |
Sharpe ratio |
Correlation |
|
|
Commodities |
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|
Precious Metals |
|||||
|
Gold |
6.1% |
3.0% |
19.6% |
0.16 |
0.68 |
|
Silver |
3.9% |
0.8% |
30.8% |
0.03 |
0.23 |
|
Non-ferrous metals |
|||||
|
Copper |
3.7% |
0.6% |
28.4% |
0.03 |
0.46 |
|
Aluminum |
-0.7% |
-3.8% |
24.4% |
(0.15) |
0.24 |
|
Lead |
4.1% |
1.0% |
25.8% |
0.04 |
0.57 |
|
Nickel |
5.7% |
2.6% |
41.7% |
0.06 |
0.52 |
|
Tin |
1.3% |
-1.8% |
21.5% |
(0.08) |
0.61 |
|
Steel |
0.3% |
-2.8% |
16.4% |
(0.17) |
0.39 |
|
Zinc |
-0.5% |
-3.6% |
24.2% |
(0.14) |
0.46 |
|
Agriculture commodities |
|||||
|
Live Cattle |
1.8% |
-1.3% |
19.6% |
(0.06) |
0.88 |
|
Livestock |
1.3% |
-1.8% |
19.2% |
(0.09) |
0.73 |
|
Sugar |
1.0% |
-2.2% |
40.2% |
(0.05) |
(0.31) |
|
Heat Oil |
0.5% |
-2.6% |
33.4% |
(0.07) |
0.65 |
|
Lean Hogs |
0.3% |
-2.8% |
31.1% |
(0.09) |
(0.19) |
|
Coffee |
0.3% |
-2.8% |
37.4% |
(0.07) |
(0.37) |
|
Cocoa |
0.1% |
-3.0% |
28.8% |
(0.10) |
0.09 |
|
Cotton |
-0.6% |
-3.7% |
28.5% |
(0.12) |
(0.36) |
|
Soybean |
2.8% |
-0.3% |
30.1% |
(0.01) |
0.37 |
|
Wheat |
2.6% |
-0.5% |
25.9% |
(0.01) |
0.33 |
|
Grains |
2.6% |
-0.6% |
22.9% |
(0.02) |
0.34 |
|
Corn |
2.3% |
-0.8% |
25.7% |
(0.03) |
0.31 |
|
Energy |
|||||
|
WTI Crude |
2.1% |
-1.0% |
34.3% |
(0.03) |
0.64 |
|
Real Estate Sector |
|||||
|
Residential real estate |
|||||
|
Residential (S&P Case Shiller) |
2.8% |
-0.3% |
3.1% |
(0.06) |
0.87 |
|
Commercial real estate - Total Return (price + income) |
|||||
|
NCREIF Property Index |
6.5% |
3.3% |
4.2% |
0.81 |
0.89 |
|
NCREIF Property Index - Apartment |
7.4% |
4.3% |
4.3% |
1.03 |
0.90 |
|
NCREIF Property Index - Industrial |
6.7% |
3.6% |
4.2% |
0.89 |
0.89 |
|
NCREIF Property Index - Retail |
6.7% |
3.6% |
3.8% |
0.98 |
0.88 |
|
NCREIF Property Index - Office |
6.0% |
2.9% |
5.7% |
0.52 |
0.87 |
|
Commercial real estate - Price return |
|||||
|
Commercial Price Index |
3.2% |
0.1% |
7.8% |
0.03 |
0.94 |
|
Apartment Price Index |
4.0% |
0.9% |
8.7% |
0.11 |
0.96 |
|
Industrial Price Index |
2.9% |
-0.2% |
10.1% |
(0.01) |
0.95 |
|
Retail Price Index |
3.0% |
-0.1% |
8.4% |
0.00 |
0.92 |
|
Office Price Index |
4.0% |
0.9% |
8.2% |
0.13 |
0.93 |
|
Equities |
|||||
|
Domestic Equities |
|||||
|
S&P 500 |
3.9% |
0.8% |
15.8% |
0.06 |
0.00 |
|
Global Equities |
|||||
|
MSCI World Index |
4.7% |
1.5% |
15.3% |
0.11 |
0.84 |
|
Emerging Markets |
|||||
|
MSCI BRIC EM Index |
4.8% |
1.7% |
0.75 |
||
|
Brazil |
24.6% |
21.5% |
48.6% |
0.45 |
0.92 |
|
China |
4.7% |
1.6% |
44.3% |
0.04 |
0.58 |
|
Russia |
13.8% |
10.7% |
56.5% |
0.19 |
0.79 |
|
India |
11.7% |
8.6% |
29.0% |
0.30 |
0.84 |
|
JPM Morgan Emerging Market Debt Fund |
-2.5% |
-5.6% |
(0.25) |
Treasury yields have declined significantly over a period of time. Except during 1970's (during high inflation) treasury yields have declined over past 3 decades and currently are at an all time low (pls refer to chart below and suscribers may referenced the attached excel file). High inflation coupled with economic recovery could cause yields to increase.
treasury_inflation.pngtreasury_inflation.png
|
Change in yield |
||||||
|
Fixed Income |
2000's |
1990's |
1980's |
1970's |
Correlation |
|
|
Treasury Bonds |
||||||
|
Short Term |
||||||
|
Yield on Treasury (1-month) |
(357) |
n/a |
n/a |
n/a |
0.64 |
|
|
Yield on Treasury (3-month) |
(534) |
(254) |
(504) |
n/a |
0.63 |
|
|
Yield on Treasury (6-month) |
(541) |
(228) |
(609) |
n/a |
0.63 |
|
|
Yield on Treasury (1-yr) |
(557) |
(208) |
(434) |
651 |
0.81 |
|
|
Intermediate Term |
||||||
|
Yield on Treasury (2-yr) |
(551) |
(199) |
(372) |
433 |
0.76 |
|
|
Yield on Treasury (3-yr) |
(517) |
(199) |
(311) |
247 |
0.66 |
|
|
Yield on Treasury (5-yr) |
(472) |
(193) |
(299) |
359 |
0.71 |
|
|
Yield on Treasury (7-yr) |
(423) |
(182) |
(292) |
269 |
0.61 |
|
|
Yield on Treasury (10-yr) |
(373) |
(193) |
(296) |
300 |
0.68 |
|
|
Long Term |
||||||
|
Yield on Treasury (20-yr) |
(302) |
62 |
(337) |
254 |
0.66 |
|
|
Yield on Treasury (30-yr) |
(287) |
(191) |
(270) |
237 |
||
|
Inflation Adjusted Bonds |
||||||
|
Inflation-indexed Treasury (5-yr) |
(54) |
n/a |
n/a |
n/a |
(0.19) |
|
|
Inflation-indexed Treasury (7-yr) |
(81) |
n/a |
n/a |
n/a |
(0.26) |
|
|
Inflation-indexed Treasury (10-yr) |
(72) |
n/a |
n/a |
n/a |
(0.53) |
|
|
Inflation-indexed Treasury (10-yr) |
222 |
n/a |
n/a |
n/a |
(0.83) |
|
|
Municipal Bonds |
||||||
|
20 yr Municipal Bond |
(130) |
(115) |
(37) |
59 |
0.43 |
|
|
Corporate Bonds |
||||||
|
Investment Grade Corporate Bonds Yield (AAA) |
(239) |
(144) |
(223) |
283 |
0.56 |
|
|
High Yield Corporate Bonds Yield (BAA) |
6 |
(175) |
(260) |
320 |
0.55 |
|
|
Mortgage Bonds |
||||||
|
30-yr, Fixed-Rate Conventional Home Mortgage |
(340) |
(199) |
(314) |
559 |
0.60 |
|
|
International Bonds |
||||||
|
S&P/Citigroup International Treasury Bond Index Ex-U.S. |
(143) |
n/a |
n/a |
n/a |
0.17 |
|
|
Euro Govt Bond 10-15 yr |
(167) |
n/a |
n/a |
n/a |
(0.07) |
|
|
India Sovereign Zero Coupon Yield 10 Year |
(479) |
(86) |
n/a |
n/a |
0.25 |
|
|
USD Brazil Sovereign Zero Coupon Yield 10 Year |
(774) |
128 |
n/a |
n/a |
(0.16) |
|
|
USD- Euro Russia Sovereign 10 yr |
(1,076) |
n/a |
n/a |
n/a |
(0.69) |
|
