1. Correlation matters: Understanding how asset classes behave J.P. Morgan Investment Academy Series SM FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

2. Correlation matters 1

3. Golf and correlation 2 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

4. Experience and golf scores The more years a golfer plays… …the lower the golf score should be Conversely… If an individual plays less golf … …the golf score is likely to be higher 3 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

5. 4 A statistic risk measure Correlation describes the relationship between the price movements of two securities or classes of securities in relation to each other Relationship, expressed as the correlation coefficient, is represented by a value in the range of -1 and +1: Understanding how investments behave FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

6. 5 Positive correlation Non–correlation Negative correlation When some investments zig, others zag FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

7. Positive correlation Positive correlation: as one security moves up or down, the other security will move in lockstep in the same direction Expressed as a correlation co-efficient of +1 6 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

8. Non-correlation Non-correlations: price movements are completely random Expressed as a correlation co-efficient of 0 7 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

9. Negative correlation Negative correlation : if one security moves in either direction the other will move by an equal amount in the opposite direction Expressed as a correlation co-efficient of -1 8 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

10. Classic examples of correlation Coat sales fall (negative correlation) Bathing suit sales rise (positive correlation) The price of pencils may rise, fall, or remain the same (non correlation) 9 When temperatures rise: FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

11. Correlation matters 10 For illustrative purposes only. FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

12. 11 Why correlation matters FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

13. Why correlation matters Minimize portfolio risk and volatility by investing in various asset classes that have varying levels of risk, volatility and return To achieve effective diversification, portfolio holdings should not be highly correlated 12 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

14. Reading a correlation chart 13 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

15. Asset class returns 14

16. Summary Correlations do matter. Correlation is an important measure of risk. Describes the relationship between the price movements of two securities or classes of securities expressed as the correlation coefficient on a scale of negative 1 to positive one. Correlations between and among asset classes can shift over time. Correlation helps inform asset allocation decisions and helps investors, advisors and portfolio managers construct better diversified and more resilient portfolios. 15

17. Thank you 16 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

18. J.P. Morgan Asset Management 17 The above commentary is intended solely to report on various investment views held by J.P. Morgan Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc. © J.P. Morgan Chase & Co., June 2013