It Goes Both Ways

In a previous post, we saw an example of the negative correlation of Long-Term United States Treasuries to the broad market. (For a primer on negative correlation, read this and this.) In that example, the broad market  saw negative returns for the moment. At the same time, United States long-term Treasuries were up.

In another instance of the negative (or inverse) correlation of United States long-term Treasuries to the broad market, see the snapshot below of yesterday's market performance. Every asset class listed below shows a positive return. The one exception is United States Treasuries - both nominal and inflation-adjusted (TIPS).

Remember to interpret the above not as a danger of holding Long Term Treasuries. It is quite the opposite. Consider the diversification value of holding assets with low or negative correlation. In the event that one asset class is down, another asset class will be up. This "hedge" functions to buffer your portfolio from  downward movements.