Will Positive Stock-Bond Correlations Fade Due To Sticky Inflation?

2025-02-19 00:45:00 ET

Summary

• The case for a “diversified” portfolio relies primarily on the complementary relationship between stocks and bonds.
• While equities are expected to deliver the lion’s share of performance most of the time, bonds provide a hedge for those times when stock prices are falling.
• The diversification benefits of holding stocks and bonds endures, but the degree varies through time.

By James Picerno

The case for a “diversified” portfolio relies primarily on the complementary relationship between stocks and bonds. While equities are expected to deliver the lion’s share of performance most of the time, bonds provide a hedge for those times when stock prices are falling. In the parlance of statistics, stocks and bonds exhibit low or negative return correlation....

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