Falling correlations signal better times for equity long/short hedge funds

Long/short hedge funds struggle when stocks move in unison

Equity long/short hedge funds are benefiting from a drop in intra-stock correlation, which has held below its five-year average since mid-2012.

Correlation among S&P 500 stocks averaged 36% in the last six months of 2012 compared with a five-year average of around 43%, according to data provided by JP Morgan's asset management division.

The fall in intra-stock correlation is a positive sign for equity long/short strategies, which tend to struggle when individual stocks move in unison

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