Archive for June, 2009

We’re All Correlated Now

June 30, 2009



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.