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Thinking about All Weather strategy, I looked at a number of financial asset indexes and their prices over the past year:

  • US Stocks
  • US Medium-term (7-10 year) Treasury Bonds
  • US Long-term (20+ years) Treasury Bonds
  • US Inflation Protected Treasury Bonds
  • US High-quality Corporate Bonds
  • Gold
  • Commodities
  • US Real-estate

What I see is that they all essentially dipped at the end of 2018 and then came back and have gone up considerably. Something like 50% change the prices. And there seems to be a lot of correlation between the price of these assets.

Can someone explain why all these assets are acting with such a high correlation? Is it essentially just the changes in the real value of cash and its usual volatility that makes these assets look so highly correlated? If so what is causing that? It is rapid mood swings between psychological euphoria and fear of a bursting bubble?

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  • How did you measure the correlation? Central bank interest rate adjustments ultimately change the money supply which has a wide reaching effect on asset prices.
    – quid
    May 14, 2019 at 17:36

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Can someone explain why all these assets are acting with such a high correlation?

Because the markets do not work for like 10 years ever since the Federal Reserve has decided to push out super cheap money in a program called "Quantitative Easing". When the markets are kept up by super cheap credits and outright purchase of assets by a central bank, that is exactly the behavior you get.

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    Low interest rates > expanded money supply > increased asset prices
    – quid
    May 14, 2019 at 17:46

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