THE DIVERSIFICATION ILLUSION: WHEN MARKETS MOVE IN LOCKSTEP

“Don’t put all your eggs in one basket.”
It’s perhaps the most repeated investment advice in history. And it’s increasingly misleading.
What traditional diversification wisdom fails to acknowledge is that in today’s interconnected global markets, those supposedly different baskets often move in alarming synchronicity.

Consider these sobering realities:

• During the 2008 financial crisis, previously uncorrelated assets suddenly moved in lockstep, with correlations approaching 1.0
• In March 2020, even gold – traditionally a safe haven – initially fell alongside equities
• The typical trader’s “diversified” portfolio often consists of assets that respond identically to interest rate shifts

This isn’t theoretical.
It’s a structural reality of modern markets that renders traditional diversification strategies increasingly ineffective.
The problem isn’t diversification itself – it’s that most traders are diversifying within highly correlated frameworks without realising it.
It’s rather like having insurance that only pays if your house doesn’t burn down on a Tuesday. Somewhat limiting when you actually need protection.

It’s a structural reality of modern markets that renders traditional diversification strategies increasingly ineffective.