Our Observations: Correlations for stocks declined almost across the board, which improved the situation for active stock pickers. However, nearly every other asset saw increases in their correlation, especially those with a high degree of sensitivity toward global rates. We think this could indicate a resurgence in the rate and inflation driven market that has made up most of the year’s key winners and losers. We believe this will be an important relationship to monitor as changes to rate policies continue to take shape.
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.