According to Ned Davis Research, the monthly returns of eight diverse asset classes has become correlated almost 50% of the time when compare against the Standard & Poor's 500 Index. In the 1990's, they never had the same returns. The assets are MSCI indices for international and emerging markets stocks, spot gold prices, copper futures, three and ten year US Treasuries, the Euro and the Reuters-Jefferies CRB commodities index. The correlation of large cap US stocks to the S&P 500 is at 85%.
According to Jane Buchan, chief executive of Pacific Alternative Asset Management, at the 2012 Reuters Investment Outlook summit the correlation will break at some point. The key question is when. She thinks that healthcare and technology sector stocks should diverge. Investors should position their long/short investments to take advantage of this.
According to FX Concepts LLC, a foreign currency hedge fund, the high correlation in 2011 was caused by low interest rates globally, the increase in the money supply by the Federal Reserve Bank and central bank support for the Japanese Yen and Swiss Franc. For the Group of 10 nations (Belgium, Canada, France, Italy, Japan, the Netherlands, United Kingdom, United States, Germany and Sweden), the trading range for their currencies is within 6%. Historically, it has been 20%.
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