Finding Diversification: The Geometry of Time and Correlation

When someone says ‘time is on their side,’ they’re saying time is working in their favor, and almost always from a long-term perspective. The examples in investing are numerous: exponential growth through compounded interest, the wealth creating benefits of early savings for retirement, or the long-term merits of low volatility portfolio construction for greater compounded wealth. In fact, prudent investing is virtually synonymous with a long-term perspective.

But are there instances when a shorter-term perspective also works in investors’ favor? Can a short-term perspective improve diversification? The answer is yes, resiliently so, and the proof begins with a seemingly unrelated question about the coastline of Britain.

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