Bonds Are Useless Hedge for Stock Losses as Correlation Jumps
- Correlation strengthens as bonds sell off along with stocks
- Markets are hit by debt deluge, credit downgrade, strong jobs
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Treasuries haven’t been this ineffective as a stock hedge since the 1990s.
Historically, Treasuries tend to rally when stocks are tumbling, meaning they are negatively correlated. The idea is a cornerstone of the popular 60/40 strategy that uses an allocation to bonds as well as stocks to reduce the volatility of the overall portfolio.