There are a host of reason for this increase in financial cycle correlation, but no one explanation can do the job even after accounting for the Financial Crisis. There is a real economic reason for the higher financial correlation; bilateral GDP's are also increasing, but that does not nearly explain the more explosive increase in equity price bilateral correlations. There are structural reasons for bilateral correlation changes given the lower capital control, increased capital flows, and greater economic integration. However, most important may be the tighter financial links across countries between US monetary policy and global risk appetites.
The paper, "Global Financial Cycles and Risk Premiums", provides a wealth of empirical information on this important topic. It shows a clear change in the response equity premiums to an interest rate shock over the last few decades.
Given less diversification from equity risk premiums, investors will have to look to alternative risk premium to gain diversification based on factors less sensitive to risk appetites. This may not be easy since attitudes to risk pervade all risk premiums.,