Meanwhile, the strategist said the euro and U.S. stocks are moving nearly in lockstep, which highlights how much the Eurozone debt crisis is driving the risk trade.
For diversification purposes, gold, silver and investment grade bonds have been moving independently of U.S. stocks, according to Colas. He observed that high sector correlations and high volatility go hand-in-hand.
“Currency correlations tell an important story this month. Run a correlation on the euro to the S&P 500 based on daily price action and you’ll get 81% as your answer. That is a record for post-Financial Crisis markets, although not a surprising result given the ongoing concerns in the Eurozone,” he wrote.
In U.S. sectors, the strategist said utilities ETFs have the lowest correlation to the S&P 500 at 85%. Utilities ETFs have performed well in 2011 with income-starved investors favoring “safe” dividends. [Dividend ETFs See Performance Diverge on Sector Allocations]
