Tag Archives: correlation

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 Read more […]

Volatile but Not Necessarily Disastrous

In 2018, the S&P 500 declined for the first time in 10 years. The year’s 4% decline is obviously de minimis compared to 2008’s 37% plunge, though investors may feel it more keenly since the fourth quarter’s 14% decline erased what had been a profitable year.  Nonetheless, the risk landscape changed dramatically in 2018 compared Read more […]

Surprising but Explainable

Equal-weight indices have a small-cap tilt. Therefore, one might naturally assume that the volatility of equal-weight indices is higher than that of their cap-weighted counterparts. Surprisingly, this is not always the case, and we can understand why using the lens of dispersion and correlation. Exhibit 1 shows that the volatility of the S&P 500® Equal Read more […]

Breaking Down Volatility

“Data! Data! Data!” he cried impatiently. “I can’t make bricks without clay.” – Sherlock Holmes (in “The Adventure of the Copper Beeches”) Despite yesterday’s hand wringing loss for equity markets— the S&P 500 dropped 3.3%—the index is still up 5.8% year to date 2018. Nevertheless, losing in one day a third of what the equity market Read more […]

Juxtaposition and Paradox

Effective prior to the market open on Sept. 24, 2018, the Telecommunication Services sector will be replaced with a new Communication Services sector, which will combine telecom with parts of the Information Technology and Consumer Discretionary sectors. As a result, Telecom, the ugly duckling sector comprising three stodgy telephone companies, will now be joined by Read more […]

No Longer Calm but Not Chaotic

Although market volatility has retreated somewhat since the spike in early February, it has remained elevated. In the last 30 trading sessions, the S&P 500 moved by more than 1% (in either direction) 14 times. VOLATILITY FOR S&P 500 (21-Day Rolling) Volatility manifests itself in both dispersion (a measure of the magnitude of differences among Read more […]

Vectors of Volatility

Risk is once again part of investors’ vocabulary. Through yesterday’s close, the S&P 500 lost a total of 6%, made all the more jarring by the practically straight line rise in most of 2018 prior to the losses. Volatility has, of course, ticked up, but in the context of the broader 27 year history, not Read more […]

Large-Cap Energy Stands Out in a Year of Low Volatility

Most sentient investors are aware of the low volatility that characterizes the current environment, with the S&P 500®’s trailing twelve-month annualized volatility at approximately half its level from a year ago. This trend was driven in part by some significant negative inter-sectoral correlations, for example between information technology and real estate versus financials, and energy Read more […]

2017…Among the Sleepiest of Years

If 2016 was unremarkable, 2017 was downright sleepy…at least as far as equity markets were concerned. In 2017, the S&P 500 notched the lowest level of volatility in 27 years. Both dispersion and correlations were among the lowest levels in the same period. This is in spite of a year that was far from lacking Read more […]

Active Managers: Hope for high dispersion, not just low correlations

The Wall Street Journal recently reported that, according to analysis by Credit Suisse, the correlation among S&P 500 sectors had fallen close to its lowest level ever, and that this was good for active equity managers, “who find it easier to make money betting on specific companies or trends when stocks aren’t all moving together.” Read more […]