Correlation Among Stocks Has Fallen As Volatility Once Again Wanes by Eric Bush, CFA, Gavekal Capital Blog

If there is one thing that can be counted on in the stock market, it is when volatility spikes correlations among stocks spike as well.  In 2008, as the VIX spiked from about 20 in August to nearly 81 in November, the 65-day correlation between the GKCI United States Index and The MSCI World Index increased from 0.42 to over 0.70. In 2010, the VIX spiked from about 15 to 45 and the 65-day correlation again increased from 0.48 to 0.72. One again in 2011, the VIX increased from about 15 to 48 and the 65-day correlation moved from 0.47 to 0.78. Finally, in our latest market tremor this year, the VIX spiked from below 14 to over 40 and the 65-day correlation moved from 0.46 to 0.67. The VIX stands at roughly 15-16 today  and consequently, the 65-day correlation has nearly round-tripped to its pre-correction level.

Volatility