The DARWIN portfolio correlation engine is now in production.
This means the following:
- DARWIN Portfolio equity at risk is no longer the simple sum of individual DARWIN equity at risk (which would imply 100% correlation)
- Rather, DARWIN Portfolio equity at risk accounts for diversification by analysing the correlation between DARWINs in a portfolio – e.g. the sum is less than the parts
- Correlations are available at all times
Read on if you wish more detail on all the above.
Portfolio Equity at Risk
Equity at risk in the above screenshot is 6.62% (top, right hand side) – rather than 20% as previously indicated.
Cross DARWIN Correlation
Simply click on the Equity at Risk tab (with the eye icon) to delve deeper into the correlation structure in your portfolio.
In the above correlation matrix, you can see that DARWIN NTI has e.g. a 5% correlation (0.05) with JJC, or 26% negative correlation with LEM (-0.26).
Correlation ranges are colour-coded for your comfort:
- Green (high diversification / low overlap) -> correlations of 0.2 or lower (including negative ones)
- Orange (medium diversification / overlap) -> correlations higher than 20% (0.2) but lower than 50% (0.5)
- Red (significant overlap) -> correlations higher than 70% (0.7)
Please note that we have imposed a lower bound of 0 for calculation purposes. E.g. the lowest correlation accepted for diversification purposes is 0%, and hedges (negative correlation) are ignored as a precautionary policy.
As ever, your feedback means the world to us, so keep it coming!