Thanks to ConvergEx for the following summary on how last week’s market volatility has driven some high correlations. This is an excerpt from their Friday report, followed by a quick comparison of correlations I ran for high yield and investment grade bonds compared to large and small cap equities for the month of August as compared with 2-year correlations.
From ConvergEx…
The market’s recent volatility has pushed asset price correlations for a variety of investment classes to levels we haven’t seen in over two years. For example, the 10 different industry sectors of the S&P 500 show a 96.7% correlation over the last month, as compared to 86.5% for the last 2 years and a low of 72.4% in February 2011. High yield bond prices are at a 95% correlation to stocks, another multi-year record, and currencies such as the Australian Dollar and Japanese Yen are at the upper ends of their historical price trend relationship to U.S. financial assets.
click to enlarge
Source: BlackRock
Disclaimer: Bonds and bond funds will decrease in value as interest rates rise. In addition to the normal risks associated with investing, investments in smaller companies typically exhibit higher volatility.
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