Do you agree with this. I don't: "It is only by combining assets of like volatility – and, it is assumed, like expected return – that should allow us to enjoy the free lunch of diversification." I don't think there is free lunch and I also don't think maximum benefit of diversification is when assets have like volatility and expected return. Source.
Me thinks the statement was a poor attempt to generalize. IFF one considers "S&P500" as "the free lunch of diversification", then his comment would seem slightly more palatable. I find no value in the referenced statement, but did not read the entire article.
The SnP is full of dysfunctional/underperforming stocks. Maybe even up to 40%. Better to remake the list, starting from $500Mil caps up to a $100Bil, this way, garbage is gone and more space for growth is left.
Any returns streams with inverse to low correlation but with positive expected returns; mathematically you can reap the benefits of better risk adjusted returns (std dev, drawdowns). With better risk adjusted returns, you could proceed to simply enjoy lower drawdowns or if you wish to bring up your returns - employ leverage. But do note the skewness of strategies. Shorting volatility for instance is a negative skew strategy. So beware of the consequences.