Can you have too many ETF's in portfolio?

What is the correlation between the following ETFs and how should that inform individual allocations of them in the fixed income allocation of a portfolio?

• AGG, EMB, TIP, HYG, LQD, and MUB What would be the advantage of using only AGG versus a combination of AGG, HYG, and LQD.

• Answer:

  Let me answer your question by teaching you how to find the correlations yourself using Excel and finance.yahoo (please note that there are several tools such as Bloomberg which will do this for you, however anyone with a PC can find correlations between securities using only Excel and finance.yahoo): 1.) Go to finance.yahoo and pull up the first ticker 2.) Click historical prices 3.) Enter the historical dates you wish to use in your analysis 4.) Click "download to spreadsheet" Repeat these steps for all of these tickers Now in copy the prices for each of these tickers into a single Excel worksheet. You now should have a series of prices and dates for each ticker (note that all of the dates should be the same). You will now need to find the daily returns for each security (assuming you have daily prices), you can do this by simply using the function "=ln(T/T-1)" where "T" is the former (or most recent) price and "T-1" is the prior price (i.e. if your data starts on 1/1/2011 and ends on 6/26/2011, then T = 6/26/2011 and T-1 = 6/25/2011). Copy this function down the rows for all of the historical prices. Now you can find the correlation between each of these securities by using the =correl(return1,return2) function (where return1 = the column of returns for the first security and return is the column of returns for the second security). Do this for each of these securities to find the correlation between each of the securities. As a shortcut, you can find a correlation matrix of all of these securities by going into "Data Analysis"--> "Correlation"--> Highlight the columns where your data is located and then click on the cell where you want your correlation matrix to appear. This will give you the cross correlations for your entire data series. I thought I would include the =correl() function above in addition to the correlation matrix tool in case you ever want to simply find the correlation between two assets instead of using the matrix. Hope this helps!