Uncorrelated yield

What uncorrelated yield means

Uncorrelated yield is the income a portfolio earns from sources whose risks behave differently from one another, and in particular differently from equities. The emphasis sits on the word uncorrelated, not on the word yield. Yield is abundant: any investor can raise the headline number by accepting more of a risk they already hold. The harder and more valuable task is to assemble income from risks that are genuinely distinct, so that no single environment governs the outcome. That distinction — balanced, uncorrelated sources of yield, assembled by risk rather than by category — is the idea our name describes.

Why a high yield is not the same as diversification

A familiar mistake is to treat a high yield as if it were ballast. A corporate bond sits in the fixed-income bucket, pays more than a government bond, and is not a stock, so adding it feels like adding diversification. We think that intuition uses the wrong unit of analysis. The extra yield on a corporate bond — its credit spread over the risk-free rate — is compensation for the chance that the borrower's finances deteriorate, and that risk peaks in exactly the environments where equities fall: slowing growth, tightening credit, rising fear of default.

So a credit allocation tends to give back its premium precisely when diversification is most needed. It is a legitimate way to take risk, but it is equity-like risk wearing a bond's label — it duplicates an equity book rather than diversifying it. We develop this argument in full in a high yield is not diversification. The lesson generalises: the question is never how high the yield is, but which risk you are being paid for, and whether you already own that risk elsewhere.

How B.U.Y. applies it: balance risk, not capital

A conventional balanced portfolio weights by capital. Because equities are far more volatile than bonds, a 60/40 split is dominated by equity risk — an equity bet wearing a diversified costume. We instead size each sleeve by its contribution to total risk, so that genuinely different exposures carry comparable weight in the risk budget. The exposures the framework treats as distinct from equities under stress — government duration, inflation-linked bonds, gold, and long volatility — are the building blocks; corporate credit is not, because its risk is already represented, in cleaner form, by the equity sleeve.

Sizing by risk rather than capital has a practical consequence worth stating plainly: most of the capital can sit in low-volatility instruments while the risk is shared evenly across sleeves. The aim is a portfolio where each major economic regime is covered by a sleeve built to win in it, so that growth, recession, inflation, and disinflation are all represented rather than implicitly bet against.

A high yield is compensation for a risk. The question is never how high — it is which risk, and whether you are already paid for it elsewhere.

Why it matters across a full cycle

The case for uncorrelated yield is clearest in the years when correlated portfolios disappoint together. In 2022, a 60/40 reference fell roughly 10% on the year as equities and bonds declined in tandem, while the Basic Strategy finished the year modestly higher. We show this as one illustration of construction, not as a promise: past performance is not indicative of future results, and diversification does not ensure a profit or protect against loss. The point is structural rather than predictive — a book assembled from genuinely uncorrelated risks is less dependent on any single environment behaving as hoped.

This page is general information and education — not investment advice, a personal recommendation, or a financial service within the meaning of the Swiss Financial Services Act (FinSA). It is intended for professional and institutional investors within the meaning of Article 4 FinSA and is not directed at retail clients or US persons. It is written by Flavio Melis, founder of B.U.Y. Invest. To see the idea expressed as a strategy, read about the Basic Strategy.