Abstract
US stock-bond correlation, which plays an important role in institutional portfolio construction, has been persistently negative for the last 20y. This negative correlation allows stocks and bonds to serve as a hedge for each other, enabling CIOs to increase stock allocations while still satisfying a portfolio risk budget. However, stock-bond correlation is not immutable. In fact, it was consistently positive for more than 30y prior to 2000. A return to positively correlated stock and bond returns may require CIOs to rethink their asset allocation.
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