Analyzing multi-asset portfolio risk during COVID and beyond
The extraordinary market movements of 2020 had a considerable impact on the correlations between major asset classes. Some long-established interactions, such as the co-movement of share prices and sovereign yields, decoupled or even reversed temporarily, while the US dollar transformed from risky asset to safe haven. The inverse relationship of stock markets and credit spreads, on the other hand, not only remained remarkably stable, but even intensified as the crisis unfolded.
In this paper, we take a closer look at the pairwise interactions of some of the asset-class pairs and review how they affected the risk of a global multi-asset class portfolio over the past 14 months, with a particular focus on the most recent environment.