Investment strategists were concerned about a correction in 2018 – it was a matter of when, not if Volatility spike and rising correlations limits the effectiveness of asset-based diversification. How risk-based diversification can help in periods of market stress A well flagged correction There was near consensus amongst investment managers in their 2018 outlook as regards the risk of a market correction. Equity markets had climbed relentlessly higher in 2017 with little red ink and eerily low volatility. The fact that equity volatility had converged with bond volatility illustrates the limitations of an asset-based approach to diversified multi-asset investing. Of course, it was not to last. It was a question of “when, not if” equity volatility mean reverted. And now we at least know when “when” was. Fig.1 VIX spikes as equity volatility comes back into play. Source: bloomberg.com What was the trigger? A potential trigger was identified as above...