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Systemic Risks Surge As Correlation Among Stocks Shoots Higher

Tyler Durden's picture




 

Despite everyone saying "it's a stock-picking market" (notably one of Cliff Asness' pet peeves) recent co-movements in global equities suggests once again that there is just one factor driving returns as systemic codependence surges...

 

Via Gavekal Capital blog,

Over the past several weeks, correlations among stocks have been increasing which makes it increasingly difficult for stock pickers to outperform. The most dramatic example of this is happening in Europe. The 20-day moving average correlation of European equities stands at 82%, the highest level since July 2012, which not coincidently was another period when the European economic crisis was escalating. The 65-day moving average correlation has increased to 69%, which is the highest level since the end of 2012 and the 200-day moving average also increased over 60% to 62%. This is the highest level since June 2013.

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In North America, the 20-day moving average correlation has also shot above 60% for the first time since April and to the highest level since January. The 65-day moving average correlation has increased recently from 46% to 51%.

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Asia-Pacific remains the best environment for stock pickers. However, even there, we have seen the 20-day moving average correlation increase to 55% from a low of 34% in June.

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And forward-looking market implied estimates of correlation suggest this will remain the case...

 

Charts: Bloomberg

 

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Tue, 07/14/2015 - 18:46 | 6313042 NoDebt
NoDebt's picture

" once again that there is just one factor driving returns as systemic codependence surges..."

Wait, wait.  I know the answer to this.

Tue, 07/14/2015 - 19:01 | 6313114 Model T
Model T's picture

I'm now short the S&P500 from 2105; on my price order which I posted here yesterday. $200 / pt. for me. Let it rip. 

Tue, 07/14/2015 - 19:01 | 6313120 Model T
Model T's picture

The answer to this is short the tops; it's easier than working for a living.

Tue, 07/14/2015 - 21:26 | 6313625 Lets Buy The Dip
Lets Buy The Dip's picture

if you keep shorting the tops you might have made some money, but BUYING DIPS in a BULL market is how you can make off like a bandit. 

This guy from the US, his calls on the market have been killer and rediculously accurate ==> http://www.bit.ly/1fMcakI

And to think I listened to those dummies from CNBC say the EARNINGS season was gunna be HORRIFIC!!! those buggers….I have been had yet again!! Pack of liars….pissed me off!

I think the correlation is a little overdone, and used by wall street brokers that are of ancient years, but still some fantastic charts here. 

I really thought we would crash this year, but so far, the market just keeps going up and down like a yo yo. So annoying. 

Tue, 07/14/2015 - 18:50 | 6313047 Cognitive Dissonance
Cognitive Dissonance's picture

At this point it's all about a one (wo)man (central bank) band.

Tue, 07/14/2015 - 19:02 | 6313127 Model T
Model T's picture

Wrong. 

Tue, 07/14/2015 - 18:55 | 6313066 deflator
deflator's picture

Pull up a chart of the past 50-60 years of government growth then run it out to its logical conclusion...

 

 Government growth never pulls back--nary a blip on the charts. Does that sound anything like free market capitalism to you?

Tue, 07/14/2015 - 19:05 | 6313141 disabledvet
disabledvet's picture

This really feels like QE4 is on tap here.

You know..."because everyone at the Hedge was long China and the euro and they need a bailout" kinda thing.

Tue, 07/14/2015 - 20:58 | 6313546 The Darwin Mode
The Darwin Mode's picture

Huh? That's a fail, sir.

Tue, 07/14/2015 - 19:06 | 6313144 Redart
Redart's picture

actually this is good news for bulls, The market may have a correction to go to all time highs. Better yet if general commodities and all future markets go up also, it means fresh money for a new wave.

Tue, 07/14/2015 - 19:23 | 6313219 deflator
deflator's picture

 Yeah, I think it maybe going hockeysticks before they pull the rug out too...

 

 

Tue, 07/14/2015 - 19:53 | 6313335 Contrariologist
Contrariologist's picture

Going short the S&P is a smart move based on fundamentals. Oh wait, there are no fundamentals anymore. Shorting now could backfire big time if The Fed gets scared and cranks up the QE in October. So forget fundamentals...uhhhh, anyone seen my crystal ball? This all ends soooooooooooo badly

Tue, 07/14/2015 - 20:02 | 6313363 Redart
Redart's picture

there were strong outflows from US equities and now they all go up. hmm they must be shorting a lot, puts maybeee ahah. The system might be rigged but which side should a guy be if he wants to make money? BTnextFD

Tue, 07/14/2015 - 22:00 | 6313737 FreeShitter
FreeShitter's picture

You all wanna know where that two trillion china lost went?

U.S equity markets. All time highs tomorrow.

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