By Brendan Conway
The market’s volatility benchmarks were low in January. Fund flows were brisk. And the correlation of asset classes stayed off recent highs. But correlation wasn’t as low as you perhaps might expect.
Various markets’ tendency to walk in lockstep — oil with stocks, consumer stocks with technology, and so forth — isn’t gone. In fact, ConvergEx strategist Nicholas Colas this morning turns up some statistics for January that seem surprisingly high.
The average 30-day correlation of the ten S&P 500 (SPY) sectors — which are tracked by the SPDR sector funds such as Financial Select Sector SPDR Fund (XLF) or Materials Select Sector SPDR (XLB) — was 87.5%. Not only is that higher than average. It’s slightly higher than the average since October 2009, according to Colas. That figure is 86.5%.
High-yield (JNK) and investment-grade bonds’ correlations — 75% and negative 30%, respectively — were about average versus the last few years, Colas found.
Currencies were the only group showing any real lessening in correlation. But with much talk of “currency wars” of late, I’m not sure that’s a reassurance.