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Return vs Diversification: What Matters More?

The more diversified, the lower the return expectation

Nicolas Rabener
10 min read
11 May 2026

SUMMARY

  • Diversifying strategies do not need to feature high returns
  • Lower correlations are more valuable than higher returns
  • Low correlations are preferable to negative correlations

INTRODUCTION

Almost every investor desires higher returns and is willing to bet on active fund managers to achieve these. However, most fund managers fail to beat their benchmarks, making this an expensive fool’s game for most investors. If the returns of the S&P 500 are not high enough, why not simply buy a leveraged version of it?

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