Master Multi-Asset Market Analysis Using Advanced Charting

Diversification is one of the most reliable ways to protect and grow a portfolio. This risk management strategy involves spreading investments across different assets so that when one performs poorly, others can hold the line. However, even in a diversified basket, some assets tend to move in tandem, while others move in opposite directions. This is why understanding correlations is just as important as choosing the assets themselves. 

Overview of Multi-asset Market Analysis 

Multi-asset market analysis involves the use of advanced charting tools, such as MetaTrader and TradingView, for intermarket analysis and technical analysis. The goal of this analysis is to identify the relationship between multiple assets and highlight patterns in price movements across various asset classes. 

For example, when researching the safest and most resilient assets, the top considerations are usually the US dollar, the most widely used reserve currency; gold, the most commonly invested in single asset; and the S&P 500, which captures the most extensive stocks in the US. Additional alternative investments include Bitcoin, the US 10-year Treasury bills, and commodities. 

Over time, the price movements of these assets have resulted in predictable market reaction patterns. For instance, when the economy is trending towards a recession, investors tend to shift their investments from the dollar to gold due to its intrinsic value and ability to hedge against inflation. Additionally, if commodity prices are rising, it signals good economic growth, which is positive for the stock market and negative for bonds.

Conducting a multi-asset market analysis enables traders and investors to track market trends across various assets and identify emerging trends and correlations, which can help enhance trading and investing strategies.

How To Conduct Multi-asset Market Analysis Using Advanced Charting

TradingView is the most popular advanced charting platform for multi-asset intermarket analysis, given that it: 

• Allows access to all the major financial markets in one place.
• Provides the most comprehensive charting features, including price charts, exchange connections, drawing tools, and indicators, as well as price alerts and customisation options.
• Enables users to open up to 16 charts on the same page.
• Allows for synchronisation across all charts.
• Provides over 100 technical analysis and drawing tools with up to 25 indicators per chart.
• Enables users to code indicators for multi-asset analysis, e.g., an indicator that plots the ratio of the US dollar to the S&P 500 on a single chart.

Using TradingView for multi-asset analysis involves three significant steps:

1. Decide Which Assets To Analyse

Advanced trading charts, such as TradingView, feature stocks, bonds, cryptocurrencies, and forex markets, allowing users to compare assets from each market simultaneously. The number of assets to be analysed determines the number of charts to use, although comparing multiple assets on a single chart is possible. TradingView allows for up to 16 charts per page, accessible by switching the Layout Setup at the top-right side of the page. While the basic features of the charting software are free to use, advanced features such as multi-asset market analysis, including multiple charts and the use of more than two indicators, among others, require a paid plan. 

2. Apply Relevant Multi-Asset Analysis Tools

Understanding the correlations between various assets is crucial when building a portfolio, as it helps ensure a proper risk balance. The goal is to provide a balance between assets that have positive and negative correlations. Using correlation indicators like the correlation coefficient, you can instantly know if two assets are positively or negatively correlated and what the correlation trend has been over time. 

Additionally, the Compare or Add Symbol (+) icon, located at the top left of the chart, allows users to visualise the price movement of multiple assets on the same page. If the lines of compared assets move in the same direction, it indicates a positive correlation and vice versa. 

Correlation coefficients range from -1 to +1, representing perfect negative and perfect positive correlations, respectively. While it may be rare to see perfect correlations, the higher the coefficient, the stronger the association between the two assets, whether positive or negative. Diversification works better when the multiple assets being analysed have low correlation, ensuring the volatility of one can be offset by the other.  

When comparing assets in the same market, such as stocks, there’s a higher tendency for them to move similarly with the general market, making them positively correlated. In such scenarios, the best approach is to stick to assets with low positive correlations. In the stock market, diversifying across various industries, sectors and geographies can help achieve a balanced portfolio.

3. Make Sense of the Comparisons

Understanding cross-asset correlation is crucial for adequate diversification, efficient portfolio rebalancing, and accurate price predictions. To make sense of different asset comparisons, it’s essential to start by asking the right questions. For example, the image below shows Apple’s correlation with Tesla on the daily timeframe using the comparison symbol and correlation coefficient.

The blue line represents Tesla, while the line chart at the lower half of the chart is the correlation coefficient. It’s easy to see that between July and November, Tesla and Apple showed a strong positive correlation, maintaining an average of +0.5 during this period. This suggests that both stocks tend to move in tandem and are likely to rise or fall similarly. For portfolio rebalancing, it’s advisable to analyse the course of 6 months to a year to capture accurate inter-asset relationships and avoid reading market noise. Finally, be aware of economic events that may impact future prices or significantly influence price direction. For example, stocks and bonds typically exhibit a negative or low positive correlation, meaning that when the economy is performing well, stocks tend to rise while bonds tend to fall. Essentially, mastering how different assets react to macroeconomic indicators is crucial for connecting all derived insights and making smarter investment decisions.

Master Chart Analysis for Better Market Predictions

Interpreting charts in a multi-asset market analysis requires a solid understanding of both technical and fundamental analysis. Understanding how to read indicators that highlight price direction and correlations, and how to apply data on inflation rates, interest rate decisions, employment data, and GDP growth to inform decisions about different asset classes is crucial for anticipating market reactions more accurately.