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’Risk on/risk off is changing
Standard Chartered’s Priyanka Kishor has spotted an interesting new development in correlations.
As has been well documented, since the 2008 crisis, ‘risk off’ market temperament has strongly coincided with dollar inflows.
Correlation fatigue, emerging market edition
Following up FT Alphaville’s recent focus on market correlations, here’s an interesting piece from Reuters quoting Bank of America Merrill Lynch’s Daniel Tenengauzer.
It seems that whilst investors could previously depend on emerging markets for portfolio diversification — in the last three months there’s been a very meaningful breakdown of the old relationship.
Lost in correlation fatigue
Alternate title: The end of valuation.
And this is why.
The following comes from Petromatrix’s Wednesday energy markets report:
Daily Trading Volume for WTI on Monday was at the lowest level of the year and Open Interest is not moving at all.
Correlated returns, high-yield edition
It seems equities, commodities and currencies are not the only asset classes running increasingly correlated returns.
Jerry Tempelman, a director in the capital markets research group at Moody’s Analytics,
The end of diversification, natgas edition
What happens when you get a weekly inventory natgas weekly figure that’s roughly in line with expectations?
This, apparently (H/T Sean Corrigan):
Some market participants say this could have something to do with an oil versus natgas position dominating the market.
The end of diversification?
Back in 2007, the CFTC filed a complaint against Dutch high-frequency market maker Optiver for manipulating energy futures via a practice known as ‘banging the close’.
In 2008, Optiver was charged in connection with the case,
Regulators acting at the speed of fax
Hat tip to @carlcarrie via Twitter for the following priceless nugget of information regarding some of the regulatory processes governing the increasingly fast-paced world of high frequency trading across non-equity based asset classes.
So much for diversification…
. . . and decoupling for that matter.
We’re being facetious, of course. A new academic paper from McGill University asks whether “…the potential for international diversification” is disappearing,
Unstable correlations
BNP Paribas looks at the issue of cross-asset correlations on Monday, with some curious results.
First note the following charts, which depict correlations between equities and commodities, currencies and risk instruments (click to enlarge):
A ticking time-bomb or the mother of all carry trades?
Judging by comments on some of our correlation-related posts, people seem a bit touchy about the idea that the dollar is stoking a cross-asset bubble.
Nevertheless, those saying it is so are standing firm.