For the past 25 years, investors relied on the idea that when stocks fell, bonds would rise—providing a natural hedge and reliable diversification. But recent years have thrown that expectation into question. The 2022 market downturn saw both stock and bond prices drop in tandem, raising key questions about what ultimately drives the correlation between the two—and what causes it to change.
Our research reveals that the relationship between stocks and bonds has varied from positive to negative to positive since the 1960s. In today’s uncertain macroeconomic environment, understanding the drivers of these shifts is crucial. This paper explores what causes stock-bond correlations to shift—and why investors might want to consider using alternative diversifiers in their portfolios.
