Trade of the month: Correlation

In our second article on correlation, we consider its role in multi-asset products - that is, anything other than a basket product that links to more than one asset

(see part one here)

The distinction between basket and multi-asset products is important. Baskets are popular because investors can choose any group of underlying assets and overlay an appropriate risk profile using a given structure such as principal protection, autocallable or income generation. The choice of components is important and affects the pricing parameters, but performance is a function of the basket return, which is usually a weighted average of the stock performances.

Examples of