2023-04-10 04:59:00 ET
Summary
- The historically low correlation between equity and government bond returns is a cornerstone of modern investment strategy and the traditional 60%/40% model portfolio, based on the theory this split provides diversification benefits that can improve risk-adjusted returns over time.
- There have been two significant (albeit brief) negative turns in the stock-bond correlation of returns over the past decade, both following macroeconomic or deflationary shocks and bursts of extreme risk aversion.
- The 2022-2023 positive spike in the stock-bond correlation raises the significance of whether the recent bout of higher inflation will ultimately prove short-lived or herald a longer-lasting regime shift.
For further details see:
A Marriage Of Inconvenience? The Remarkable Harmony Between Stocks And Bonds