The "Frustratingly" Correlated Markets

By on September 8, 2010

Tradermark at the blog Fund My Mutual Fund comments on the high correlation between markets and components within markets in his post entitled, “Six of Ten Largest Mutual Funds Currently Sport 0.99 Correlation with S&P 500.”

The immense correlation between the market, and almost all risk assets on Earth is not a new subject to FMMF readers. [Jun 30, 2009: Bloomberg – Correlation Among Asset Classes Highest Ever] I beat this dead horse monthly, mostly out of abject frustration. [Sep 2, 2010: Why Bother with Individual Stocks in the Perfectly Correlated Market?] I don’t have an issue if the market is up 2-3%, that 90% of stocks move in the same direction – it is all these days the market is up or down 0.7% when it drives a person nuts. Friday for example, every position I had but one was up – as I type this every position but one is down.

Tradermark continues later explaining his frustration with the current situation:

Frankly, it makes the market a frustrating and ‘less fun’ place – thoughts I am reading in many places on the internet. The market used to be a 4 dimensional jigsaw puzzle, comprised of fundamental, technical, psychological, and ‘animal spirits’. Now it’s just the dumbed down 2 dimensional Etch a Sketch. Shake it at 4 pm every day, because it has no memory from day to day. Sure you can adjust (in fact you must adjust) if you plan to stick around, but when everything is a 1:1 correlation, it simply reduces the market to ‘stoopid’ and coming in each day, checking your brain at the door, and staring at the S&P 500 chart trying to guess where it will be in 3 hours, 3 days, and 3 weeks gets to be boring.

SMA Comment: I too have become somewhat bored with the market these days. After last years fireworks the current malaise and seemingly high correlation is a little frustrating.

Source: Fund My Mutual Fund
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