Just joined this group and noticed this discussion. On the question posed by the article ... Did asset allocation and portfolio diversification fail? ... the answer given is no. The reason cited is that high correlation amongst traditional and alternative assets is to blame, not the theory itself.

However the starting premise of MPT is that there exist some stable lowly correlated assets that will help moderate volatility of portfolio returns and improve the risk/return tradeoff. If we now agree that correlations are not stable and that they cannot be relied upon in tail-events, then it seems to me that MPT is discredited... as tail events become ever more regular.

We need to turn our attention to finding ex-ante risk data reflecting our investment views of the likely prevailing regime(s). Therein lies the rub.

For too long the investment community has been inconsistent in assuming stable covariance for its risk analysis while at the same time disclaiming to clients that "past performance is no guarantee of future returns". Some people might argue that "inconsistent" is not strong enough a word!