An ITA reader sent in the following portfolio for analysis. Two funds, VXUS and VNQI, had short histories so the analysis is limited to 25 months of data. Below is the QPP analysis and the correlation matrix for this group of holdings. The S&P 500 is assumed to return 7.0% over the next six to twelve months.
QPP Analysis: Anytime a portfolio is projected to return approximately 100 basis points below that projected for the S&P 500, one can consider it a conservative portfolio. The projected volatility of 10.3% is another indicator this portfolio is built to withstand a major draw-down.
One observation is that a number of the holdings will not contribute all that much to the portfolio as the percentage (<=3%) is rather low. Sometimes I will hold on to a small percentage to calculate the ITA Index. There may be reasons for holding 2.2% in a number of the investments.
Correlation Matrix: Due to a number of low correlated holdings, the Diversification Metric is quite high (55%), a positive indicator. Low correlated assets almost always hold down both projected return and projected risk. That is the case with this group of investments. The IEF ETF should have a blue background as it is negatively correlated.