Why Correlations Change with Macro Regimes

In this episode we answer emails from Lee, Leo, Tony, and Samuel.  We revel in Lee's generosity and discuss why we hold gold and treasuries, why recent performance should not drive allocation changes and common amateur investor fallacies, how to think about diversification when you invest outside the US, and how to think about correlations in a four quadrant model.

And THEN we our go through our weekly and monthly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.

Links:

Fairfax CASA Donation Page:  Donate - Fairfax CASA

David Stein Interview:  How to Think Clearly About Money Without Obsessing Over It with David Stein | White Coat Investor

Portfolio Charts International Portfolios Analysis:  What Global Withdrawal Rates Teach Us About Ideal Retirement Portfolios – Portfolio Charts

Many Happy Returns Podcast with Tyler #!:  Building a Bulletproof Retirement Portfolio, with Tyler from Portfolio Charts - Many Happy Returns

Many Happy Returns Podcast with Tyler #2:  How to Pick Your Perfect Portfolio, with Tyler from Portfolio Charts - Many Happy Returns

Claudia Moise Paper with US Treasuries Correlation Data:  Flights to Safety, Volatility Risk, and Monetary Policy by Claudia E. Moise :: SSRN

Breathless Unedited AI-Bot Summaries:

Gold is up, bonds are weird, and everyone suddenly wants to “swap something out” based on what happened last quarter. We slow that impulse down and get back to first principles: what job does each asset do in a long-term risk parity style portfolio, and what happens when you start making allocation decisions from a gut feeling about what looks overbought or hated right now?

We dig into a listener question about replacing gold inside the Golden Ratio Portfolio and explain why utilities are not a true substitute. Utilities can be useful, but they behave like stocks more than people admit, and they often carry interest-rate sensitivity that overlaps with bonds. If you want something that behaves more like gold’s diversifying role, we talk through what characteristics matter most, including low correlation to both stocks and bonds, and why managed futures is the more logical comparison. Along the way, we call out the common traps that wreck DIY portfolios: cherry-picked dates, short-term volatility panic, and the “crystal ball” mindset that quietly turns investing into trading.

For our non-US listeners, we tackle how being based in the UK or investing in pound sterling can change implementation details without changing the big picture goal. We discuss currency risk, home-country bias, why US equities still matter for global exposure, and the tough question of whether your bond ballast should be in local currency, US dollars, or a mix. Then we answer a deep question about correlations: why stock-bond correlation is not random, how it shifts across macro regimes, and why treasuries tend to deliver negative correlation when it matters most, during recessions.

We close with weekly portfolio performance across our sample portfolios and why the most disciplined move is often to do nothing.

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