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Wednesday
Dec072011

Asset Class Correlations

The charts below highlight the rolling six month correlations for the S&P 500 relative to oil, US Treasuries, and gold.  There has been much discussion recently regarding the extreme correlations within global financial markets, and it is illustrated in the charts which show that all three asset classes have recently had correlations that were at or near multi-year positive or negative extremes.  In fact, the correlation between the S&P 500 and US Treasuries was recently at a record inverse extreme. 

In recent weeks, however, the extreme correlations between the S&P 500 and all three asset classes has eased somewhat, with the inverse correlation between the S&P 500 and gold moderating substantially.  While many investors are surely hoping that the financial markets can indeed return to some sort of normalcy where not every asset is joined at the hip, in an environment flooded with liquidity, any change to the current is likely to be only temporary.

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