A Study on Diversification and Asset Correlation in Up
and Down Markets.
In 2008, market events showed that some of the
protection provided by diversification is lost when
correlation among asset classes changes rapidly. Now,
the question is: Are traditional diversification
concepts no longer applicable due to some systemic
change? Or is there still a simple, repeatable approach
to diversification that can lead to significant
protection against loss of principle?
Many factors could be contributing to recent volatile
market behavior, for example, globalization, investor
fear, government policies, and alternative investments.
This article explores a methodology that attempts to
address these factors. 2009
