Concerns rise over correlation trades

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Dealers have built substantial short correlation positions due to the huge issuance of long-correlation structured products in recent years.

Equity correlation remains one of the most important risks for structured product issuers, so such an increase in the use of correlation-transfer mechanisms seems prudent. But there are concerns over what would happen in a market downturn such as some fear is now looming.

Alan Zagury, head of risk management trading for equities exotics and hybrids at JP

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