Investors should combine asset classes with low or negative correlation

Building a diversified portfolio will protect against big drawdowns in value

The markets have been volatile this year. Towards the end of March, when the pandemic-led lockdown began, the equity markets took a massive beating. On March 23, the Nifty50 index was down 37.5 per cent year-to-date (YTD). Now, the YTD return of this benchmark is down 0.40 per cent, which means it is about to break into positive territory. Financial advisors say one of the biggest takeaways from the downswing and the subsequent recovery is the need for investors to build diversified portfolios using asset classes that have negative or low correlation.

Correlation shows how one asset class moves in