By Tom Lauricella
In many ways, global financial markets remain lashed to the risk on/risk off seesaw that has driven trading for the last few years. But peel back the layers of the onion on the U.S. stock market and things are looking dramatically different.
Earlier this week , as part of the WSJ first quarter wrap-up, we noted that correlations between asset classes – such as the U.S. dollar and stocks – have fallen from peaks hit late last year. But cross-asset correlations remain elevated compared to history. One only had to look to yesterday’s trading, where traders hit their big shiny red “risk off” buttons following a sloppy Spanish bond auction and all the way across the Atlantic, U.S. stocks had their second-worst day of the year.
But as we also noted here at MarketBeat yesterday, data compiled by BofA Merrill Lynch show large-cap stock pickers have been having a better time of beating their benchmark. Savita Subramanian, head of U.S. equity and quantitative strategy at BofA Merrill, pointed to lower correlations between stocks as a tailwind.
We were curious where correlations between stocks stood compared to longer-term trends, so we asked Subramanian for more data.
Turns out, correlations are really down a lot. A whole lot. They’re at below average levels for the last 26 years, and perhaps most eye-catching of all, they’re at levels not seen since late 2006 – in other words, before the financial crisis.
- Read the rest here.