Diversifying with changing correlations

2022 has been an incredibly difficult year for investors. At the start of the year I wrote a research piece about the diversification dilemma, which looked at what we could do in a world where bonds and equities fall in tandem. At the time I wrote that article, we were only coming to the end of the first 4 months of the year, too short a time period from which to draw conclusions based on statistical analysis of correlations between different assets.

So I tackled the dilemma and analysed the performance of various all-weather portfolios to glean which was performing best. With the benefit of hindsight we now know that the 60/40 bond equity portfolio, which at the time was down around 5.6%, has continued to lose value and at the time of the analysis carried out for this article was down over 12%, year to date.