Stock and bond prices move together with greater country-specific risk. Bonds hedge global growth expectation risk with low country-specific risk, resulting in a negative stockbond correlation. However, as country-specific risk increases, bonds do not effectively hedge stocks because higher local growth expectation tends to lower inflation, leading to higher stock and bond prices. Consequently, countries with greater country-specific risk exhibit a higher stock-bond correlation. Investments in countries with a positive stockbond relationship outperform those with a negative relationship by 7?11%. The superior performance is not driven by investments in a fixed set of countries.