During calmer market environments, correlations of returns can gradually rise as most investments benefit from a directionally positive market environment. However, during periods of stress, as shown in the top chart, correlations can break down. This may result in a wider dispersion of returns as shown on the bottom chart. In this environment, hedge funds are able to take advantage of market dislocation to generate alpha. This is not only in the equity markets, but in the bond markets as well, as shown on the right chart. The right chart shows the spike in dispersion of both investment grade and high yield debt during market downturns.