Portfolio diversification
Nobel laureate Harry Markowitz called diversification 'the only free lunch in finance'. Here's why.
The idea
Two investments with the same expected return but different behaviour will together produce a smoother, less volatile path than either alone — with no cost to expected return.
Correlation is the key variable
Diversification helps most when the correlation between two assets is low or negative. Two tech stocks are barely diversified. Equities and long-duration bonds often are — until they aren't.
Where market-neutral yield fits
A delta-neutral trading programme aims to earn yield independent of any single asset's price. In portfolio terms, that's a return stream with low correlation to equity beta — the diversifying property investors actually want.