Ray Dalio’s All Weather Portfolio -Statistical Analysis

1- Idea

The “All Weather Portfolio” is designed by Ray Dalio to handle any economic storm, manage risk exposure and make steady returns over the long term. This portfolio draws attention because of its simplicity and stability during various economic conditions. In this story, we are going to statistically analyse this portfolio from 2007–01–01 until 2020–05–22.

The All Weather Portfolio consists of multiple asset classes. The portfolio consists of 55% bonds, 30% stocks, 7.5% gold and 7.5% commodities. The portfolio stabilizes its volatility by bonds while seeking returns through stocks and commodity. In addition, gold serves the idea of diversification.

Spesifically the portfolio consists of these instruments and their returns will be tracked using the ETFs.

2- Statistical Analysis

2.1 Correlation of Instruments

First of all, let’s explore the ingredients of the portfolio and investigate how they performed through time. The correlation map below suggests that the US total stock market is negatively correlated with the long and intermediate term bonds. Unsuprisingly, investors buy bonds and sell stocks when they feel an economic storm is coming and vice versa.