The case for holding a portfolio that’s diversified across markets and asset classes is built on the assumption that return correlations will remain below 1.0 (perfect positive correlation) by more than a trivial degree. To the extent that you own assets that move independently of one another you’ll reap the rewards of diversification, which is widely celebrated as the only true free lunch in investing. Fortunately, correlations for the major asset classes are usually below 1.0. But the numbers vary and persistently low and negative correlations are rare.
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