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

-lide1-jpg
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-