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Fund Spy

Fun With Mutual Fund Correlation Matrixes

Figure out which funds add diversification and which are simply duplication.

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Even if you invest through a mutual fund supermarket, you probably own at least a couple of funds from the same fund family. There's nothing wrong with that, but when funds share the same analysts and the managers work together, you can end up with funds that behave similarly.

If the funds are moving in lock step, you aren't getting much diversification from that second fund. This is where the correlation matrix comes in. It's something you can run in Morningstar Direct, our institutional-level software platform. It looks at how closely fund returns have tracked one another over the trailing three years. I've run three special correlation matrixes to help you build a portfolio. You can look to see which funds have the highest correlation so that you know which ones are most duplicative. You can also look at which have the lowest correlation so you know which have the greatest diversification.

Russel Kinnel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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