Correlation Among Stocks, Especially In Europe, Have Shot Higher by Eric Bush, Gavekal Capital
Over the past several weeks, correlations among stocks have been increasing which makes it increasingly difficult for stock pickers to outperform. The most dramatic example of this is happening in Europe. The 20-day moving average correlation of European equities stands at 82%, the highest level since July 2012, which not coincidently was another period when the European economic crisis was escalating. The 65-day moving average correlation has increased to 69%, which is the highest level since the end of 2012 and the 200-day moving average also increased over 60% to 62%. This is the highest level since June 2013.
In North America, the 20-day moving average correlation has also shot above 60% for the first time since April and to the highest level since January. The 65-day moving average correlation has increased recently from 46% to 51%.
Asia-Pacific remains the best environment for stock pickers. However, even there, we have seen the 20-day moving average correlation increase to 55% from a low of 34% in June.