Monthly Portfolio Studies (Long): S&P 500 Index and Dollar Index
On a longer-term basis, what influence does a long position in the Dollar Index have on the S&P 500 Index? To answer this question, we have constructed two portfolios to evaluate the possible benefits of adding the Dollar Index into an equity-based portfolio. The first portfolio invests 100% of its assets into the S&P 500 Index (Blue Bars), while the second portfolio invests 90% of assets into the S&P 500 Index and 10% into the Dollar Index (Orange Bars). No suggestion is being made here to actually invest based on these allocations. The only purpose is to bring attention to the diversification benefits of the Dollar Index and provide some context around whether it belongs on your list of markets to be traded.
The Breakdown:
The charts provide a basic analysis, as they identify the differences between the two portfolios. The charts are divided into three sections: return comparison, risk comparison and portfolio change. The first section shows the percent return figures for the portfolios over a daily time period. The second section focuses on risk, which is defined as standard deviation of return, over the same time period. The final section shows the net percentage change to the portfolio’s performance based on the small 10% allocation in the Dollar Index. In many cases, we see an increase in return (Light Brown Bar) and decrease in risk (Dark Brown Bar), which can only make an equity-based portfolio stronger.
Monthly Portfolio Studies:
