When might S&P 500 volatility ruin stock diversification? -VIX analysis

WHAT IS DIVERSIFICATION OF THE STOCK SECTOR?
Several sectors to pick from in the S&P 500 if an investor wishes to diversify exposure to the US stock market. There are 11 options on the pie chart below, ranging from value-driven industrial businesses to information technology companies focused on growth. A trader might distribute their portfolio across any mix to insure against sector-specific hazards.
If the S&P 500 has a hiccup in this situation, losses in one market area may be countered or lessened by gains in another. This may work if the market’s various sectors aren’t dropping simultaneously. However, a stock diversification technique becomes more unreliable when practically every index component is dropping in a binary move.

This is not evidence in favor of stock diversification. Instead, market dynamics that affect how sectors in the S&P 500 move together are being examined. The CBOE Volatility Index (VIX), frequently referred to as the market’s favorite “fear gauge,” is used for this. What VIX levels should traders and investors observe because doing so risks jeopardizing their stock diversification strategy?

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