Cross asset correlations have been rising for a number of years as the commodification of finance proceeds apace. In tandem with this, cross regional international equity market correlations have risen with the penetration of emerging markets’ consumer markets and the infiltration of emerging markets in the global production chain. Apple sells as much stuff in Asia as it does in Europe these days.

These factors alone have been challenging the Yale Model of endowment management where an investor seeks to avail himself of diversification benefits. The 2008 financial crisis blew these correlations up to levels never before seen.

Our view is that these effects are now dissipating, a process hastened by normalisation.

Correlation analysis, as practiced by financial firms, is riddled with mischievous thinking and scurrilous salesmanship. When correlations are deployed to make a point, or sell a security, beware! The Fed Model, which suggests that there is some relationship between bonds and equities is bunku