ETF buying in the US increases equity index correlation

The use of exchange-traded funds (ETFs) in the US could be contributing to a gradual rise in correlation within major equity markets, according to Stephen Einchcomb, head of equity derivatives strategy for Europe and the US at Royal Bank of Scotland in London.

Both inter- and intra-equity index correlation spiked during the financial crisis, for example reaching 75% within the Eurostoxx 50. While this is now normalising, market participants say it is returning to a slowly upward trend that has b