The wisdom of RG

From a loyal MR reader:

These higher equity correlations aren’t scary.

The unique volatility of stocks and sectors (the vol of the part orthogonal to SPX returns) is not lower; indeed slightly higher. [TC: try here on SPX]

The correlation increase is driven entirely by higher SPX vol.

In a time of higher SPX vol, to say that higher correlations are scary is the same as saying that it’s scary that unique vols aren’t rising along with the SPX vols.  That’s not scary at all—indeed, I could argue that it’s reassuring.  It’s the higher SPX vols that are scary.

Claims that “stock pickers can’t make money because everything moves together” are false for the same reason.


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