S&P produces correlation index

S&P has launched the S&P Diversified Trends Indicator designed to offer investors an alternative investment indicator uncorrelated to traditional bond and equity performance.

The indicator comprises long and short positions in 24 highly liquid financial and commodity futures. S&P will calculate and publish daily values of the indicator

Historic returns from the indicator since 1961 have shown, over the long-term, it historically has a high correlation with the CPI, especially in inflationary environments.

Steven Oyer, Standard & Poor's vice-president, said the indicator was the first metric investors could use to profit from the causes of inflation and deflation.

'When used as an overlay to traditional bond and equity market exposure, its low volatility and diversified nature provides a means for investors to potentially profit from the very elements that usually hamper stock and bond returns,' he said.

The indicator can also be used by equity and fixed income managers to help in hedging their portfolios.

Product developers may exploit its low historical volatility when creating structured products, as it could be used as an absolute return component within them. The product is expected to be launched in the first quarter of 2003.