How to solve the correlation conundrum

The best reason to invest across asset classes has always been the anticipated protection such diversification should provide from individual assets’ volatility. A portfolio of equities, bonds and perhaps some commodities should, in theory, smooth each component’s ups and downs. Yet, as many investors found in 2008, and again in 2011, diversification evaporates when asset classes correlate. Achieving the goal of consistent risk-adjusted returns through diversification has not proven simple and some traditional approaches have failed to deliver the promised risk protection. As a ...