Dalio expressed a part of my view on Risk better than I did. When talking about correlation he said most people just think about it as the average of how two prices behave relative to each other but this idea is flawed. The measure is meaningless without understanding the underlying Driver.
For example: stock and bonds are negatively correlated when economic growth is volatile -- a slowdown in growth is likely to cause both stock price and interest rates to fall. But stocks and bonds are positively correlated when inflation expectations are volatile - a rise in inflation will likely see a rise in interest rates. Both of these correlation relationships are correct and yet opposite - the context is what matters.
Similarly in my view of Risk, I'm concerned about minimising the Risk of Absolute Loss (at the Portfolio level) and having diversified Ideas by the independent nature of their Drivers.
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