Seeking Alpha

Asset class correlations, rather than the VIX, have recently done a better job warning of...

Asset class correlations, rather than the VIX, have recently done a better job warning of upcoming turbulence, writes Nicholas Colas. Right now, S&P industry correlations are running at 88%, up from 75% in February, he says - "a very visible warning flare" for now, but a contrarian buy signal once it gets into the mid-90s (like last fall).
From other sites
Comments (3)
  • dentman1
    , contributor
    Comments (8) | Send Message
     
    I am a newby and could you explain briefly what "asset class correlations" are? It sounds like you are constructing correlations on stocks, bonds, cash(?) etc. to develop a percentage? Thanks so very much.
    26 Jun 2012, 12:03 PM Reply Like
  • vdiehl
    , contributor
    Comments (2) | Send Message
     
    I would like to know what specifc assets and see a chart of performance predictions versus actual outcomes. Thank you very much
    26 Jun 2012, 01:09 PM Reply Like
  • Robert Keyfitz
    , contributor
    Comments (800) | Send Message
     
    Not clear why the reference to "contrarian." I'd have thought a contrarian buy signal would be some indicator of investor pessimism in the market but how is this related to asset class correlations? By the time correlations get to the mid 90s (if, indeed, they DO get there), market sentiment may already have turned bullish and the strategy will be following the crowd rather than betting against it. That's not to say this is bad advice, just that it's not obviously contrarian.

     

    Interestingly, according to my research (on this site), the time for a contrarian bet has already come and gone. Contrarian investors should be cashing out at this point (after having made money over the past 6 weeks).
    27 Jun 2012, 01:09 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Hub
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs