Investors typically measure an asset’s potential to diversify a portfolio by its correlations with the portfolio’s other assets, but correlation is useful only if it provides a good estimate of how an asset’s returns co-occur cumulatively with the other asset returns over the investor’s...

Investors rely on the stock-bond correlation for a variety of tasks, such as forming optimal portfolios, designing hedging strategies, and assessing risk. Most investors estimate the stock-bond correlation simply by extrapolating the historical correlation of monthly returns and assume that this...

Soon after Harry Markowitz published his landmark 1952 article on portfolio selection, the correlation coefficient assumed vital significance as a measure of diversification and an input to portfolio construction. However, investors typically overlook the potential for correlation patterns to...