When I was at university, I learnt one of the great principles of modern finance: A diversified portfolio reduces risk for a given level of return. By mixing assets, you could smooth the ride and still aim for the same target return. It felt like magic.

But it is not magic. The reason it is such a powerful and enduring concept is correlation. If assets do not move together, the losses in one can be offset by gains in another. It is the foundation stone of portfolio theory, and for good reason. Even the great Ray Dalio — founder of Bridgewater hedge fund — claims that his “mantra of investing” is “15 good uncorrelated return streams ... [that] lower [his] risk by up to 80 percent”.

So far, so neat. But there is a catch. What do I mean by this? Let me give you two examples. Firstly, retail and industrial in the 2010s went in opposite directions — they were uncorrelated during that period. Similarly, Spain and Germany went in opposite directions between 2008