The correlation between stocks and bonds is difficult to estimate reliably and can change drastically with macroeconomic conditions. We have developed a model that uses macroeconomic factors to explain the relationship between equities and treasury. This econometric model produces forward-looking correlations at various time horizons. Given current conditions, we expect the correlation to remain negative as long as business cycle variables dominate the effect of rate and inflation surprises. But, importantly, we show that, under certain market conditions, the diversification between stocks and bonds may not be as effective as most asset allocators usually assume.