In the following video, Fool contributor Dan Caplinger discusses how many investors have started to question whether diversification still works as a way to protect your portfolio from downturns. Increasingly, the Dow Jones Industrials (^DJI 0.26%) and other markets both in the U.S. and around the world have traded in lockstep, with highly correlated returns threatening the protection that diversification used to provide.
Dan notes that even though returns on various stocks have gotten a lot more highly correlated lately, some stocks move more dramatically than others in response to changing market conditions. By tapping the relative stability of lower-volatility stocks, you can get the benefits of diversification while still having exposure to potential profits from rising markets. Dan gives some good examples of such low-volatility stocks within the Dow for investors to take a look at.
