Charts: Equity vs. Gold. Vs. Debt

Published: July 10, 2015 at 11:02 am

Last Updated on

Here are some charts from yesterday’s post: Should gold be part of your long-term investment portfolio?

  • Franklin Indian Blue Chip is chosen as representative of equity
  • Franklin Indian Income fund as representative as debt.
  • Per gram price data obtained from indexmudi is used to represent gold investment
  • Data range is June 1997 to June 2014 (quite small but not bad).
  • Results over a longer period can be found here:  gold is riskier than stocks

Normalized NAV movement (absolute)

gold-asset-allocation-3

 

Normalized NAV movement (logarithmic)

gold-asset-allocation-4

 

Rolling annual returns (all three)

gold-asset-allocation-5

 

Rolling annual returns (debt and gold)

gold-asset-allocation-6

Extent of Correlation

The extent of correlation between annual prices returns can be easily computed with Excel. If there are two asset classes in a portfolio, ideally they must be negatively correlated. That is if one gives +ve returns, the other gives -ve returns and vice versa. This will stabilize the portfolio regardless of market conditions.

Gold and Equity annual returns are correlated by -0.65%.  Negative, but too small to make a difference, in my opinion.

Debt and Equity: -3%. Better but not spectacular. The stability that debt offers in a folio makes it indispensable.

Debt and Gold: -21%. Now that is significant, but not very useful!

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