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, correlations tends to breakdown and may result in a wider dispersion of returns, as we show on the left. In this environment, hedge funds can 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.