Deconstructing Diversification: A Novel Approach to a Long-Standing Strategy

On Wednesday, February 24th we hosted a webinar featuring Miguel Sosa, Research Strategist & Product Specialist with Bluerock.

Traditionally, “diversification” has been understood to be low correlation (think of putting eggs in baskets), and to a lesser extent low volatility (think of holding cash), but with the development of modern financial markets, the mindset of investors has seen a shift to expecting negative correlation. In other words, investors ask, “How can I find effective ‘insurance’ for those sudden and large sell-offs?”

In this presentation, Miguel will discuss, through quantitatively deconstructing diversification, that only a small portion of diversification’s benefit comes from negative correlation (or the “hedging effect”), contrary to many investors’ expectations. The vast majority of the benefit comes from diversifying investments with low volatility and low correlation to a portfolio’s equity exposure.

Given this conclusion, we propose an updated allocation approach to the traditional equity/fixed income method to diversify a portfolio more effectively and potentially increase risk-adjusted returns. 

On-Demand

Please note: This webinar is restricted to the following groups: wealth advisors, broker dealers, and Elite Blue Vault partners. The replay will be available to Blue Vault subscribers and partners only. For information about becoming a subscriber, click here.