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One of the basic tenets of portfolio construction is diversification, the strategy of owning multiple asset classes with different risk characteristics. In theory, diversifying a portfolio with different, imperfectly correlated assets can help lower performance volatility over time. During the past three years, the returns of many riskier assets that historically have provided some diversification benefits became nearly perfectly correlated (moved in the same direction) with U.S. stocks, which are often used as the core holding of a portfolio.
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