We're All Correlated Now




Main Entry:
1 : a mode of marching in step by a body of persons going one after another as closely as possible 2 : a standard method or procedure that is mindlessly adhered to or that minimizes individuality
— in lockstep
: in perfect or rigid often mindless conformity or unison <politicians marching in lockstep with the party line>

Bloomberg picked up on something that everyone who trades for a living already knows…correlation of asset classes has almost never been greater.

From Bloomberg via FT Alphaville:
The Standard & Poor’s 500 Index, whose increase in the past three months was the steepest in seven decades, is rallying in tandem with benchmark measures for raw materials, developing- country equities and hedge funds. The so-called correlation coefficient that measures how closely markets rise and fall together has reached the highest levels ever, according to data compiled by Bloomberg . . .

Listening to brokers and traders banter about their individual fave stocks on line at Chirpin’ Chicken at lunchtime, you get the sense that some market participants haven’t yet caught on to this, but most have.  I want to grab these guys and tell them how wide the rising tide is, and how futile it is to worry about the individual names right now…but then my chicken is ready, so I pay and I’m out like a scout.

Not all stocks are correlated, but many of the major sectors are moving along with the overseas trade, enough so that the indices themselves are dragged along for the ride in each direction. 

Also worth noting is that all of the hot themes have melded into one, from emerging markets to commodities to precious metals.  These groups are all moving in lockstep with each other as hedgies and growth mutual funds position themselves for an overseas recovery (they got bored waiting for the US consumer to fire up the credit card and head to the mall…ain’t happenin’).  If you run a long portfolio for a fund family, you gotta go somewhere and many managers seem to be in agreement that these are the sectors to own.

Just how high is the current correlation between stocks, emerging markets and raw materials?  Check it:

The correlation coefficient for the S&P 500 and the Reuters/Jeffries CRB index of commodities has been at 0.74 for the last 60 days. A value of 1 means perfectly correlated, but to give you the historical significance of a reading of 0.74 — it’s the highest correlation in at least five decades, according to Bloomberg.

And what of the fact that oil is moving so severely in tandem with the S&P 500?  And why are treasuries now moving with US stocks?

This is dogs sleeping with cats stuff, guys.  I have a guess or two on why this may be transpiring (centered around money flows rather than fundamentals) but The Why isn’t what matters.  The real question is The How Long.


Investors Go Moo (FT Alphaville)

Treasuries Turn Tail (FT Alphaville)

Cash Best as Record Correlation Hints Collapse (Bloomberg)

Full Disclosure:  My commentary above is for informational purposes only, do not trade or invest based on anything you read here.

Tags: , , , , , , , ,

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Immediate Edge Review 2020 commented on Sep 23

    … [Trackback]

    […] Information to that Topic: thereformedbroker.com/2009/06/30/were-all-correlated-now/ […]

  2. blazing trader review commented on Sep 23

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2009/06/30/were-all-correlated-now/ […]

  3. bitcoin era commented on Oct 01

    … [Trackback]

    […] Read More Information here to that Topic: thereformedbroker.com/2009/06/30/were-all-correlated-now/ […]

  4. fake Rolex Watch Imitation commented on Oct 23

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2009/06/30/were-all-correlated-now/ […]

  5. travel wallet commented on Oct 29

    … [Trackback]

    […] Read More on that Topic: thereformedbroker.com/2009/06/30/were-all-correlated-now/ […]

  6. DevOps as a Service commented on Nov 05

    … [Trackback]

    […] Info to that Topic: thereformedbroker.com/2009/06/30/were-all-correlated-now/ […]

  7. Tor search onion address commented on Nov 08

    … [Trackback]

    […] Read More Information here on that Topic: thereformedbroker.com/2009/06/30/were-all-correlated-now/ […]

  8. td easy web commented on Nov 15

    … [Trackback]

    […] Find More on on that Topic: thereformedbroker.com/2009/06/30/were-all-correlated-now/ […]