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In our previous impact of volatility article we made an argument for diversification: Large stock market drawdowns occur relatively frequently It takes higher positive returns, or a longer period of positive returns, to overcome a large drawdown Therefore it’s rational to attempt to reduce volatility within a portfolio The most common way of reducing volatility is by diversification: investing in assets that have no (or negative) correlation However, correlation between many assets and markets has been increasing over the last decade, and increases more rapidly during violent market falls Therefore many investors have been seeking alternative, non-mainstream assets to achieve diversification In… continue reading