Biggest Correlation Spike on Record Means More Bad News for Quants
- Shift in market structure may have taken place: Bernstein
- Factor risk may come to dominate portfolios, analysts say
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Call it the curious case of correlation? Co-movements between factors, or investments based on a particular style such as growth or momentum, have reached the highest level in at least two decades, according to research from Sanford C Bernstein Ltd.
The move is unusual and poses an additional headache for quantitative funds after a difficult year, according to Bernstein’s Head of Global Quantitative and European Equity Strategy Inigo Fraser-Jenkins, who once suggested that passive investing was worse for society than Marxism. While correlations typically tick higher during big selloffs, he said, individual stocks haven’t been moving in lockstep as much as factor groupings in recent weeks.