Rotblut: Highly Correlated Stock Returns Are Temporary
September 16, 2011 at 10:00 AM EDT
Rising correlations diminish the benefits of diversification and the potential excess return that can be realized by picking individual stocks. Correlations are not static numbers, however, and periods of higher correlations have historically been followed by periods of lower correlations. Therefore, it would be a mistake to assume that diversification has stopped providing benefits.