Correlations Across Markets

What this unit covers

Learn to read correlations between asset classes, shares against gold and shares against bonds, using a worked example from a real risk-off event.

By the end you will be able to

• Explain cross-asset correlation using the same logic as stock-to-stock correlation.
• Interpret correlation figures to judge whether an asset genuinely diversified against equities.
• Apply an evidence-first check before assuming any asset protects a portfolio.

How it starts: Three Safe Assets, One Bad Week

1. Your stock holdings fall sharply in one week.
2. You hold gold, government bonds and corporate bonds, each called safer than stocks.
3. In an example week like this, which one moves against your stocks?

Words you will meet

Correlation

A number between -1 and +1 showing whether two assets move together, apart, or without a pattern.

Credit risk

The chance a borrower, including a bond-issuing company, fails to pay back what it owes.

Government bonds

Debt issued by a government, generally seen as carrying little risk of non-payment.

Corporate bonds

Debt issued by a company, carrying the risk that the company itself struggles to repay.

In this module: Cross-Asset Thinking

1. Capital Flows Between Asset Classes
2. Risk-On vs Risk-Off Markets
3. Correlations Across Markets (this unit)
4. Building a Multi-Asset Perspective