Bonds Seem to Not Diversify Anymore. Now What?

Bonds are doing something they haven't done in decades: consistently correlating to stocks, all while delivering disappointing returns. So is the 60/40 portfolio dead? We examine AQR's latest article, where Cliff Asness, Daniel Villalon and Antti Ilmanen argue that a positive stock-bond correlation is a terrible reason to add more equity risk to your portfolio. Using 100 years of data, we test whether bonds ever truly diversified stocks, how the post-2022 positive stock-bond correlation changes the math, and why cash may not be such a bad alternative to bonds in a stock portfolio.

Bonds Seem to Not Diversify Anymore. Now What? was originally published at Alpha Architect. Please read the Alpha Architect disclosures at your convenience.