The Correlation Map — Peter Svach

What low correlation actually buys you.

Every alternative asset class makes the same pitch: diversification. This map prices that pitch. Horizontal position shows how each sleeve has moved against a plain 60/40 portfolio over the trailing decade. Height shows what it returned. Bubble size shows the income it paid along the way. The further left and higher up, the harder the diversification is working.

The Correlation Map

Trailing 10-yr · bubble size = income yield · author's illustrative estimates

Real assets Private markets Hedge funds 60/40 reference Left of the gold line = tends to zig when the 60/40 zags

Correlation is the product

Return alone never justified an alternative — public equity is cheaper. What you are paying for is behavior the 60/40 cannot give you, and that lives on the left side of this map.

Yield changes the waiting

The big bubbles pay you to hold them. An income stream makes illiquidity survivable in the years when the diversification argument is being tested.

The right side needs a reason

Anything plotting near the 60/40 with private-fund liquidity terms should have to explain itself. High correlation plus a lockup is the combination to interrogate first.

The framework behind this map is Chapter 4 of The Average Is Not the Offer.

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