Implied correlation
This July, the three-month implied correlation index reached an all-time low since its introduction in 2006. The implied correlation shows investors how closely index components shares prices, in this case the S&P 500, are trading with each other. Therefore, the all-time low signaled that the stocks in the S&P 500 were trading very differently from each other compared to history with some stocks experiencing substantial gains while others declined or remained stagnant. This changed quickly at the beginning of September, when share prices took a nosedive across the board, triggered by a carry trade unwind in Japan and general concerns about the US economy. Since that correction in share prices, the implied correlation index has not reached its July lows but remains well below levels seen historically.
Source: Cboe Global Markets, September 2024.