Additional findings include:
- Industry sector correlations to the S&P 500 averaged 72.4% in January, a 16-month low. However, consumer staples stocks’ correlation to the S&P 500 decreased to 41% from 80% in December.
- Gold and silver continue to trade at a modest negative correlation to financial assets.
- The Australian dollar and the euro correlations fell to around 0% to 20% from over 60% in the fourth quarter.
- Corporate bonds also diminished in overall correlation. High-yield bonds have a 62%, whereas high-grade corporate bonds have a 15% correlation.
Despite the drop in correlation among industrial sectors and major indexes, the CBOE Volatility Index, or VIX, a.k.a the “fear gauge,” still stands at around 17, above its one-year low of 15, to the relief of options traders. Unfortunately, it seems as though it hasn’t been great for the ProShares VIX Short-Term Futures (NYSEArca: VIXY), which is down 6.2% in the last 10 days.
Lower correlations means we’re seeing more opportunities now than we have in months, so dust of your entry strategy and start looking for your spots by using the 200-day moving average.
Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.
Max Chen contributed to this article.