The S&P 500 is down 6% for the last three months and the downward trend is obvious. If your broker does not allow you to short the market (by for instance buying SH – ProShares Short S&P500 ETF), what should you do? If standing on the sidelines with a cash position is out of the question, then what should you shift your investments to?

The correlation between the S&P 500 and various assets or factors can change over time, and it’s essential to keep in mind that past correlations do not necessarily predict future relationships. However, some factors that have historically shown a relatively low correlation with the S&P 500 include:

1. Precious Metals: Assets like gold and silver have often had a low negative correlation with the S&P 500. They tend to perform differently because they are considered safe-haven assets and are often sought after during times of economic uncertainty.

2. Government Bonds: U.S. Treasury bonds, especially longer-term bonds, can have a low or negative correlation with the S&P 500. Investors tend to move to government bonds during market downturns, driving up their prices and lowering yields.

3. Utilities Stocks: Utility companies are considered relatively stable and defensive investments. They often have a lower correlation with the broader market due to the essential nature of their services and consistent demand. Examples: NextEra Energy (NEE), Duke Energy (DUK), and Dominion Energy (D), have historically shown low correlations with the S&P 500.

4. Consumer Staples: Companies that produce everyday consumer goods, such as food, beverages, and household products, may have a lower correlation with the S&P 500. Consumer staples are often seen as recession-resistant because people continue to purchase these items even during economic downturns. Companies like The Clorox Company (CLX) and Procter & Gamble (PG), which produce everyday consumer goods, often have lower correlations with the S&P 500 because of the relatively stable demand for their products.

5. Long-Term Treasuries: Longer-term U.S. Treasury bonds, like 30-year bonds, can exhibit a low correlation with the stock market due to their relatively stable, fixed interest payments.

6. Currencies: Major currency pairs, like the EUR/USD or USD/JPY, tend to have low correlations with the S&P 500 because they represent different asset classes and are driven by different economic factors.

Diversification across various asset classes can help manage risk in a portfolio and reduce the impact of changes in correlations. So when your portfolio is suddenly reaching an unbelievable top, your best bet might be diversification (and also setting aside cash to buy the next dip). Before making investment decisions, it’s crucial to conduct thorough research and consider your financial goals and risk tolerance. As always, this is not investment advice.