Chart du Jour: Stock correlation at an all-time high

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Laszlo Birinyi’s team at TickerSense alerts us to the fact that 50-day correlation of S&P 500 Index member companies with the Index has just risen to the highest levels since the market bottomed in 1987. “An ugly market, but attractive stocks?” asks Birinyi.

Makes one think …


Source: TickerSense, August 19, 2011.

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2 comments to Chart du Jour: Stock correlation at an all-time high

  • innertrader

    No clue as to what I’m looking at here. First, is it the S&P 500 Stock Index, referred to as “members”? Second, is it the “correlation” of the 50 Day Moving Average to the Index itself? Third, if it is, does ONE previous event predict another? I have to have 135 samples of anything before I’ll put money on it… but that’s just me. However, as a trader, I would certainly think the market could rally from this point; but that has nothing to do with the above chart.

  • @innertrader: “members” = S&P 500 constituent companies. Each constituent has been correlated with the the Index over rolling 50-day periods. This bunch of correlations on any given day was then aggregated to arrive at a single number for that date. The more panicky investors get, the higher the correlations, i.e. there is no where to hide for specific securities. This is the way I understand the chart from where I am spending my night in Geneva.

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