Correlation | April 12, 2017

Category: Quant Insight

Our Observations: Nearly every asset class has experienced an increase in short-term correlation (22 days), and many have risen above their long-term averages. We think this is proof of how interest rate expectations and inflation are driving near-term returns and why it is important to keep an eye on the trading pattern of interest rates. That said, certain stock assets are below long-term correlations. Less rate-sensitive sectors of the market, such as the NASDAQ 100, may add some diversification benefit.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

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