Structural shifts in equity flows and ETFs force up correlation, says HSBC

Correlation rising

Correlation in the global equity market has been rising since 2000 and is now at record high levels, with implied correlation in August 2010 reaching a level similar to that of the credit crisis, according to HSBC, in a report dated September 10, 2010.

The change is measured by implied correlation: in 2007, the correlation between the constituent stocks of the S&P 500 stocks was around 40%, rising to 50-60% as the crisis built, and then spiking at 80% in October 2008, before slipping back to 55-