FSA warns about correlation levels
The UK Financial Services Authority (FSA) has warned that increasing correlation between asset classes could exacerbate a rapid widening of spreads and significant price declines for riskier asset classes.
The regulator warned in its annual Financial Risk Outlook, published on January 31, that instruments historically used by investors to diversify their portfolios due to low correlation may no longer be fulfilling this role effectively. The rise in correlation between asset classes could also
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