Research Affiliates questions whether diversification still works in a world where asset class correlations have risen and valuations are elevated across markets. The paper argues that despite recent periods of simultaneous losses, diversification has not disappeared, though its benefits may look different going forward.
Is Diversification Dead?
Research Affiliates
Rob Arnott, John West
Research
17 Pages
Key Takeaways
Diversification Still Works: Multi asset portfolios reduced drawdowns by ~25–35% historically, even as correlations temporarily spiked during recent crises.
Correlation Spikes Temporary: Equity bond correlations turned positive in short periods, but reverted negative over longer 20+ year horizons.
Valuation Matters More: Starting valuations explain up to 60% of long term returns, making diversification across cheaper assets more effective.
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