Man Group argues that inflation breaks the traditional diversification playbook, where stocks and bonds no longer offset each other. When inflation rises above roughly 2.5%, correlations can turn positive, forcing investors to rethink how portfolios are constructed.
The Inflation Diversification Problem
Man Group
Edward Cole
Research
15 Pages
Key Takeaways
Stock Bond Correlation Flips: Correlation turns positive when inflation exceeds about 2.5%, weakening traditional diversification.
60 40 Failed Recently: A classic 60 40 portfolio lost nearly 17% in 2022, its worst result since the global financial crisis.
Alternatives Outperformed Bonds: Equity market neutral strategies delivered about 8.67% nominal returns in 2.5% to 4% inflation regimes.
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