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Tag Archives: correlation

Sep 13, 2021

Headwinds on the Active Horizon

Active managers’ performance was disappointing in 2020, despite the market’s heightened volatility. As the market continues to march upward in 2021, it’s natural to wonder if current conditions are favorable for stock pickers.  We expect active managers’ difficulties to persist. We can think of volatility in terms of its components: dispersion and correlation. Active managers…

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Mar 30, 2021

Opportunity Does Not Equal Attainment

We’ve previously argued that most managers should prefer above-average correlation, because the incremental volatility a manager accepts to pursue an active strategy will be lower when correlations are high. In addition, active managers should prefer above-average dispersion, because stock selection skill is worth more when dispersion is high. Both correlation and dispersion rose in 2020….

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Jul 9, 2020

A Conundrum in a Different Key

Volatility, dispersion, and correlation are elements of what we’ve elsewhere characterized as The Active Manager’s Conundrum. Active managers should prefer: Low volatility, which is typically associated with higher returns High dispersion, which means a larger payoff for correct stock selections High correlation, which reduces the opportunity cost of a concentrated portfolio The conundrum arises because…

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Jun 25, 2020

Making Sense of the Active Manager’s Conundrum

Why are the market environments most conducive to generating positive absolute returns the least conducive to producing positive relative returns? Explore the active manager’s conundrum with S&P DJI’s Craig Lazzara and Anu Ganti.

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Mar 25, 2020

Coronaviral Correlations

Mea culpa: Roughly a month ago I used a dispersion-correlation map to describe how index dynamics can illuminate market movements.  In particular, I reported that since high dispersion seems to be a necessary condition for a bear market, and S&P 500 dispersion levels at the end of February were far below those prevailing in past…

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Mar 19, 2020

Showtime for Active Managers?

The rapid spread of coronavirus and oil price concerns have whipsawed U.S. equities since the S&P 500® reached its all-time high on Feb. 19, 2020. On March 16, 2020, the index plummeted by 12%, its worst decline since October 1987; as of the close of trading on March 18, 2020, losses for the S&P 500…

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Mar 17, 2020

Equity Liquidity at a Reasonable Price

The fall in equity market values since February’s peak has been sudden and dramatic.  During this period, the equity markets have functioned well at their primary task of facilitating price discovery at a time when values were changing rapidly.  Equity investors who wanted to trade have been able to trade.  (Whether they were wise to…

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Feb 25, 2020

The Most Dangerous Words

The four most dangerous words in investing are “This time it’s different.”  –  Sir John Templeton As investors ponder the ultimate extent of the coronavirus epidemic, this week’s equity market declines are of natural concern to every asset owner.  The obvious question, after near-record point drops in major indices yesterday and today, is how much…

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Jan 8, 2020

S&P Composite 1500®: Measuring Market Trends

The S&P Composite 1500 measures the U.S. equity market by combining three world-renowned benchmarks – the S&P 500®, S&P MidCap 400®, and S&P SmallCap 600® – which together encompass approximately 90% of U.S. equity market capitalization.  With 2019 in the rear-view mirror, it is obvious that last year was extremely positive for U.S. equities:  the…

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Jun 4, 2019

Not Melting Yet

Despite the hovering cloud of geopolitical menace as we entered 2019, the U.S. equity market enjoyed an almost seamless rise through the first four months of the year. May’s retreat reacquainted investors with volatility and served as a reminder that the market is near all-time highs, having enjoyed a more or less sustained increase for…

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