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No. of Recommendations: 0
You cannot know future correlation in advance, and it's future correlation that determines whether this strategy will succeed or just sock you with lots of transaction costs.

Most people who use this strategy assume that correlation doesn't change, i.e. the future will be the same as the past. However that's right about as often as attempting to predict future percentage returns based on what returns were in the past (not very).

For instance, stocks and bonds used to have a low correlation; now it is much much higher.
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