A flattening regime distribution is a clean argument for diversification, but it undersells how much disagreement still sits underneath the surface.
Private Equity carries both the highest expected return in the CMA set, 9.65%, and the widest standard deviation, 2.2, and that return figure is already trending down quarter over quarter.
Diversification works precisely because that kind of disagreement exists, not despite it.
Fair, factor divergence alone gets you there in normal conditions. I'd just add that when disagreement gets this wide, 2.2 on Private Equity, it's a different kind of signal than factor correlation, it tells you how contested the return path itself is.
A flattening regime distribution is a clean argument for diversification, but it undersells how much disagreement still sits underneath the surface.
Private Equity carries both the highest expected return in the CMA set, 9.65%, and the widest standard deviation, 2.2, and that return figure is already trending down quarter over quarter.
Diversification works precisely because that kind of disagreement exists, not despite it.
You don’t need to have disagreement to have diversification though. Sometimes different markets are just focused on different factors.
Fair, factor divergence alone gets you there in normal conditions. I'd just add that when disagreement gets this wide, 2.2 on Private Equity, it's a different kind of signal than factor correlation, it tells you how contested the return path itself is.