I can't be 100% on this but they look for low correlation in different countries. For example (I'm just making this up) Italian banks may have a low correlation with S&P and so Dalio took a magnificent short of Italian banks. https://www.bloomberg.com/news/arti...les-wagers-against-italian-firms-to-3-billion
Cool video! This is the path I have started to go down with my own research. I already have the capability to construct strategy portfolios based on a number of factors but what I do not have yet is adding correlation as a factor. Basically I have a ton of strategy candidates already constructed and their definitions and result metrics saved to disk. I just need to figure out how to add a correlation score to each strategy. I am thinking determine the correlation of each strategy to the S&P 500. From there, I can use the correlation score to test different strategy portfolios and then target the portfolio to have a certain correlation to the S&P 500.
The tricky bit is return streams that are not correlated. Can you construct streams with low correlation from the same assets? I don't know. Will be interested in your progress.
This is the most complicated and time consuming explanation of the benefits of portfolio diversification that I have ever seen. I otherwise like Dalio's enthusiasm in his books.
Must be something I'm missing. Did you call that complicated? It seemed pretty simple to me. Is there another explanation I missed? I'd love to see one in writing.
What tool can you use to determine asset correlation? I'd make a list of things like Cryptocurrencies, Muni Bonds, Private Equity, Real Estate, Public Utilities, Precious Metals, Futures (something stable like Corn), Oil, and Corporate bonds.