Category: stock correlation

  • Correlation Up – A Beta Not Alpha World For Now

    | | stock correlation

    We follow the dispersion, volatility and correlation indices generated by Standard & Poor’s which show intra-index stock behavior over time. When the correlation across stocks within in an index is high, there is a clear sign that the market is facing a macro shock. Performance should be biased toward beta risks. Fund returns will be driven by their beta exposure and timing skill not by their stock-picking skill. When correlation is low across stocks within an index, we can say it is a stock picker’s environment because skill-based traders will be rewarded for exploiting differentiation across firms. This lower correlation will generate more dispersion in returns if there is additional volatility … Read more Correlation Up – A Beta Not Alpha World For Now