Most readers are probably familiar with the basic math behind interest rates and bond prices: When interest rates go up, bond prices go down. As the market recalibrates what a bond’s future cash flows are currently worth, a higher discount rate reduces the value of future coupon payments, resulting in lower bond prices. But there’s also a secondary impact on correlation, which is a statistical measure that captures how different securities or asset classes move in relation to each other. Combining asset classes that have correlations below 1.0—meaning they don’t tend to move in the same direction all the time—can ... (full story)