Implied Correlation

Tyler Durden's picture

Market Bloodbath, "Happy Birthday Mr. President" Edition





The Dow is down more than 500. The S&P is down 60. The VIX surges 35% to 32 the highest since June 2010. Implied correlation surges to the highest since last summer. ES volume surges to the highest since the flash crash. Europe is opening in 12 hours. Margin debt is near record high levels, and mutual funds have record low cash. Liquidations galore. Did we miss anything?

 


Tyler Durden's picture

And For That Flashy Crashy Smell, Here Are Surging Vol And Implied Correlation





You can look at the Dow which is hilariously green on the day despite the now doubly confirmed contraction of the US economy. Or you can look at the VIX which is now surging in what can be classified as an offerless market, and up well over 10% at last check. NYSE Circuit breakers now off.

 


CapitalContext's picture

Capital Context Update: Slow News, Mo Selling





Top-down equities underperformed credit once again as day after day we see the QE2 froth being blown off the weak recovery beer. HY credit is at its widest in six months, financials CDS are starting to crack finally, and sector relative richness in stocks is beginning to sync back to credit.

 


CapitalContext's picture

Capital Context Update: Quedit Quite Quiet





Activity in spread land was very muted today with only a handful of names really making any moves. Equity outperformed credit but single-name credit was disappointing as up-in-quality continued. Primary issuance dominated thoughts today as 2s10s30s seemed to run S&P futures nicely up as credit ignored it.

 


CapitalContext's picture

Capital Context Update: Weak Breadth and Rotation





Equities have significantly underperformed credit the last two days but have plenty of room to go before they re-sync with any kind of value. Rotation under the surface points a risk-averse crowd seeking safety and not poised to BTFD.

 


CapitalContext's picture

Capital Context Update: Themes in a Flat Market Week





While equities are credit closed almost unch from last Friday but at their lows/wides of the week, there was plenty under the surface that clearly signals derisking is rife and discrimination active. HY dispersion and CMBX tranches among others point to some cyclical turning points that do not auger well.

 


CapitalContext's picture

Capital Context Update: All Asunder but Credit Calm





Equities continued their path of convergence to credit's recently weak signals today as we saw the largest compression between debt and equity in two months. Up-in-quality and up-in-capital structure very evident as single-name vol rose notably.

 


CapitalContext's picture

Closing Context Update: Surface Calm Hides Some Tension





Equities outperformed credit today, prompting a re-entry in our relative-value ETF position but while indices show improvement, rotation across sectors, quality cohorts, and capital structures suggest risk appetite is sorely lacking.

 


CapitalContext's picture

Closing Context Update: Protection Bid Across All Assets





Equities underperformed credit once again as macro protection was in demand (in all asset classes) and some rotation from macro-to-micro protection in equities ended a day which was very ugly open-to-close despite what headlines will yell.

 


CapitalContext's picture

Capital Context Update: Systemic Risk Rising and Equity Underperformance





Away from the chaos that was the commodities sector today, recent themes in credit, equity, and vol contexts continued to gnaw away at the bullishness of every talking head. Shifts in CMBX tranches point to growing fears of systemic concerns in MBS markets and the up-in-quality trade (or up in capital structure) is in full force.

 


CapitalContext's picture

Capital Context Update: Ebbs, Flows, and Surges





Equity underperformed credit as HY put in its worst close-to-close widening in two weeks and filled the gappy gamma-driven chasm from last week. CMBX activity starting to signal systemic fears perhaps and a pick up in vol skews (downside protection bid) remain worrisome as so many under-currents indicate less than stellar confidence.

 


CapitalContext's picture

Capital Context Update: Observations and Other Greeks





While stocks seemed in a world of their own today relative to Treasuries, FX carry, PMs, oil, and even the USD, they managed to make solid gains amid above average volume following a series of dismal macro prints this morning. Credit outperformed but we outline why the velocity of moves may slow a little here.

 


CapitalContext's picture

Capital Context Update: Transitory Fluctuations





Stocks ended the day higher, though off their highs, handily outperforming the HY and IG credit markets as the FX and PM markets exploded in the afternoon around Bernanke’s press conference. Divergence between high and low quality credit and equity suggests releveraging is starting to be priced in.

 


CapitalContext's picture

Capital Context Update: Debt Down on a Dull Day





Equities (unch) managed to algorithmically outperform credit (wider) and un-sync from correlation and vol on the day amid rather tepid conditions. Up-in-quality remains in cash and synthetic credit and protection in vol seems bid again (for now).

 


CapitalContext's picture

Closing Context Update: Up-in-Quality Continues





Headlines will crow of the strength in equities and credit today. However, the lack of high beta participation in credit, the underperformance of financials, and the clear continuation of the somewhat more risk-averse up-in-quality trade in credit and equity markets remains a concern.

 


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