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Venture Capital Investments Show Low Correlation to the S&P 500
Though risky, low correlation equates to being a good diversification tool. A study by Ibbotson Associates examined performance since 1960 for domestic stocks and 1970 for international stocks.
The study found that venture capital has just less than 1/2% correlation with the S&P 500. Compare that to 67% correlation for small cap stocks, 35% correlation for U.S. long term government bonds, and 48% for international stocks.
Of course, in terms of risk, venture capital had an average annual return of 45% with a standard deviation from that return of 116%. By comparison, the S&P 500 had an average return of 13% with a standard deviation of 16%.
Still, the study shows that venture capital may not be a worthwhile hedge against the broad stock market for some portion of one's wealth.
Source: Wall Street Journal, March 23, 2000
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Sponsored by James J. Eccleston, an attorney representing stockbrokers, financial planners and
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