Equity correlation and volatility move out of sync

Dealing with a break-up


Financial crises usually have a striking impact on correlation. With investors panicking and pulling money out of any investment deemed to be at risk, volatility and correlation can spike to extremes as everything moves in tandem. The same pattern emerged in the second quarter, when the eurozone sovereign debt crisis was at its peak. Unusually, though, volatility has dropped in the months since May, while correlation remains locked at close to record highs. This phenomenon has been evident

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