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The ECB's stimulus package may have reduced the fragility in European equities, but correlations remain high. The markets appear to be struggling to incorporate the effects of multiple sources of pressure from geopolitical risk, increased currency volatility, and moribund energy prices.
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In such a differentiated environment, the dispersions of the S&P 500® and S&P Europe 350® moved up to their highest levels in three years. Dispersion in developed markets is markedly up as well.
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Correlations are relatively high across the board, too – which has meant greater market volatility. For the moment, we seem to have entered a new regime: the VIXTM registered an average level of 14.17 in 2014; it closed above 15 every day in January, averaging above 19. |
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However, in confirmation of the nuanced opportunity set facing investors, multi-asset correlation remains lower than usual. |
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