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Correlations And The Art of A Terrible Tango

While diversification may be one of the most common refrains in finance, the irony is that it is home to widespread misconceptions among investors, both novice and seasoned alike.  Everyone intuitively understands the wisdom of “don’t place all your eggs in one basket” – such logic extends to everyday life – but investors often find themselves with far fewer “baskets” than they even realize.

What factors account for this discrepancy in diversification?