Sunday, September 11, 2011

Correlations are up again

A year ago I posted about correlations between major asset classes and stocks being higher than they had been in the past.  In reality what was going on was that the portion of the stock's risk that is due to the market was higher relative to the portion of a stock's risk due to firm specific factors.   For my MBA students, this should all be familiar as we've just covered the single index model in class.  Anyhow, apparently we're back to high correlations again as this article in the FT reports. Movement of big US shares harks back to Black Monday