Empirical evidence on the stock-bond correlation

Robeco

Roderick Molenaar, Edouard Sénéchal, Laurens Swinkels, Zhenping Wang

Research

57 Pages

The authors examine long run stock bond correlations across major markets to understand when bonds hedge or move with equities. Using an extended international dataset, they tie correlation regimes to inflation, real interest rates, and sovereign credit risk, then explore what shifting regimes mean for multi asset portfolio construction.

Date published: July 2023

As of July 19, 2023. Y-axis represents the stock-bond correlation

Key Takeaways

Correlation regimes shift: Stock bond relationships flip across decades, so short samples can mislead investors about diversification benefits.
Macro drivers matter: Inflation levels, real rates, and sovereign credit risk explain when bonds hedge or amplify equity moves.
Portfolio design impact: Higher correlations reduce diversification, increase balanced portfolio risk, and are linked to higher required bond premia.
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