Abstract
The current narrative that bonds no longer diversify equities because of low yields and a potential shift in bond-equity correlation fails to consider the relative importance of bond volatility in reducing overall portfolio volatility. Bonds will continue to provide diversification if bond volatility is lower than equity volatility, even if the correlation is positive. While better outcomes can be achieved under negative correlation, this is secondary to the impact of relative volatility. <b>Key Findings</b> ▪ The current narrative that bonds no longer reduce portfolio risk because of low yields and a potential shift in bond-equity correlation fails to consider the relative importance of bond volatility in reducing overall portfolio volatility. ▪ The role of bonds in the portfolio is to provide volatility reduction. Bonds will continue to lower portfolio volatility if bond volatility is lower than equity volatility, even if the correlation is positive. ▪ While better outcomes can be achieved under negative correlation, this is secondary to the impact of relative volatility.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
