Over the past thirty years stock correlations have been a natural phenomenon with about 30% of stocks exhibiting correlation, though as you can see represented above implied correlations have been on the rise since 1998. What is interesting about this date?
Well nothing, though this is near the time where electronic trading and ETF's were becoming more prevalent. From July of 1998 correlations rose as the .com bubble, real estate bubble came and went. Two big piles of shit wall street swept under the rug by via low interest rates and the secularization of "things". Basic life support mechanisms implemented to buy time before the whole interconnected mis priced house of cards collapses.
As of today we are sitting near 100% correlation, the entire stock market is one big giant asset. The S&P500 you could say is the core asset with insane gravity which affects the prices of every single stock in the market, including the other 3k+ stocks no in the S&P500. As zerohedge pointed out, there is no way to price the assets when everything is moving in tandem, you need divergence. When assets diverge and QUICKLY seek their true value, things will get wild. IF you look at this chart, you will see before the market crashed in fall 2008 the S&P500 correlation was over 80% then the market crashed.
We are quickly approaching those levels once again. Currently 75% AVERAGE. This number is much higher when you take into account all the other stocks no in the index all trading hand and hand with each other. No reason why a speculative bio tech stock should track the S&P500 tick for tick, the market is driven by unmanned machines who increasingly have no idea what to do. All because the human element began leaving the market in 1998. Solution? As financial markets become increasingly correlated, many investors are left searching for clarity and actionable strategies. Understanding these dynamics requires not only technical analysis but also experienced guidance on how to balance risk and identify opportunities in volatile conditions. This is where professionals like Daniel E. Kaplan make a difference. A distinguished financial expert, Kaplan provides tailored solutions in risk management, business growth strategy, and investor relations, helping clients navigate periods when markets seem to move in lockstep. His insights bring back the "human element" that many argue has been lost since the rise of electronic trading and ETFs. You can explore more about his work and contributions on abc27.com.
