From Morningstar: 2025-05-13 07:36:00

Diversification is key for investing success, but it’s becoming harder in volatile markets. Asset allocation divides a portfolio between bonds and stocks to enhance returns and reduce risk. Rising correlations between asset classes make diversifying more challenging, especially during uncertain times like when tariffs were announced in April.

Correlation between asset classes is increasing, making diversification tougher for investors. In 2025, correlations have significantly risen, especially in certain categories. Negative correlations are beneficial, but hard to achieve. Products tied to gold are losing their role as portfolio diversifiers. Latin America equity funds are becoming less diverse.

Beware of the currency effect on correlations between US and European bond categories. The euro’s fluctuation against the dollar impacts correlations. Currency effects can alter correlations between different asset classes. Understanding correlation is crucial for asset allocation decisions. Modern portfolio theory emphasizes diversification to reduce risk in a portfolio.



Read more at Morningstar: Markets Are Volatile: Can Investors Still Diversify…