1. The MAS Academy – vol. 7 Correlation PD&M Multi Asset Solutions For internal use only. Multi Asset Solutions: actively managed and actively explained Participation Stability Preservation Alternatives   

3. SECTION 1 Definition and significance of correlation For internal use only.

5. Definition 2/2 Dependency of return developments Increasing diversification benefit Correlation coefficient: Dispersion of returns: Correlation: For internal use only. Let’s have a look at two markets – e.g. equities and bonds – and their day-to-day changes. The statistical dispersion of returns is the more linear the more correlated the two return developments are, and the more widespread the more uncorrelated they are: perfectly positive un- correlated perfectly negative Return of equities Return of bonds

6. Backward looking: ex-post correlation 1/2 The graph illustrates the cumulative performance of Swiss bonds and Swiss equities, from which we conclude the following risk and return figures: Based on these key figures, we calculate the correlation between the two markets as follows … Data as at 31.07.2008 / Time horizon: 31.12.1987 – 31.07.2008 How to measure it For internal use only. 11.0% 16.4% Swiss equities 4.2% 2.8% Swiss bonds Return Risk

9. SECTION 2 Anticipate correlations correctly is key for investment management For internal use only.

13. SECTION 3 Frequently asked questions For internal use only.

16. The end! For internal use only.

17. Contact information www.ubs.com Pascal Guillet UBS Global Asset Management Product Development & Management Gessnerallee 3-5 CH-8098 Zürich +41-44-235 4314 [email_address] For internal use only.