Many investors look for diversification by finding sectors that don't move inline with the overall market, but the problem is that when the market has quick down moves, everything seems to get hit. The chart below highlights the correlation between the S&P 500 and its ten major sectors over two time frames. One time frame is from 1990 to now and the other is from June of this year to now.
As shown, all sectors (with the exception of Telecom) have become extremely correlated with the market over the last three months. The Utilities sector, which has had the lowest correlation with the S&P 500 since 1990 at 0.47, moved up to 0.86 over the June-August time frame. Energy, Consumer Staples, Health Care and Materials -- all sectors that investors are told to flock to for safety, have also moved much closer to 1 (exactly correlated with the S&P 500) over the past few months.
This example shows that a portfolio with holdings spread out across multiple sectors does not necessarily provide the diversification one seeks to protect themselves during a market decline.