29 Dec, 2020 23:00 am

Correlations For Return Volatility Have Spiked

Correlations For Return Volatility Have Spiked
Stocks Analysis by James Picerno covering: . Read James Picerno's latest article on

The problem is particularly acute with conventional asset classes.In our periodic updates on return correlations for the major asset classes (see here, for example), the scope of the challenge is clear: most asset pairings tend to be closely correlated.But across the broad sweep of asset classes, low and negative return correlations are rare.Unfortunately, finding that diversification power with conventional asset classes is difficult – perhaps more so than is generally realized, as the following volatility correlation profiles suggest.

Consider the median of the rolling one-year vol correlation (vol-corr) for the major asset classes via a set of proxy ETFs.For a broader perspective, let’s run the numbers on all the ETF proxies for the major asset classes, based on the following funds: p The table below shows that the volatility correlations are high for all the asset pairings, based on a trailing one-year window as of Dec.

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