The possibility of imitation-induced correlation tightens the limits to arbitrage caused by the risk, discussed above, of the "flight" of capital-constrained arbitrageurs in the face of temporarily adverse price movements. If correlations between different arbitrage positions could be relied upon to remain low, the risk of forced flight could be reduced considerably by holding a large portfolio of diverse arbitrage positions, as Shleifer and Vishny acknowledge (1997, p. 47). However, as LTCM found, diversification is of little avail if correlation can suddenly appear around the world and across asset classes when things "go bad."

Donald MacKenzie, An Engine, Not a Camera, loc. 1229