Diversification is an important part of constructing a portfolio, where we typically want assets to have low, or even negative, correlations with each other. The chart on the top shows the historical correlation between stocks and sovereign bonds, which is typically negative. The bottom chart shows the powerful effect of portfolio diversification. It illustrates the difference in movements between the ASX 200, a 60/40 portfolio and a 40/60 portfolio and when each would have recovered its original value at the market peak in 2007 from the market low in 2009. The equity market fell by more than either portfolio and took nearly three years longer to recover its value.