As correlations are on the rise again, investors should be aware and ready to implement a strategy to keep their portfolios properly diversified. A report from ConvergEx said that the average correlation between equity sector ETFs and the S&P 500 is now above 97%, which is considerably higher than the 82% seen last quarter.
The report also said that correlations with emerging markets and high yield bonds have increased and that there is little difference in owning high yield bonds, international stocks and U.S. stocks. Investors should also realize that silver and gold correlations are shifting now, after the recent plunge in the metals prices in September.
Rising correlations are not a sign to abandon a diversification strategy. What is a high correlation today will likely reverse to a negative in the near future. Over the long term time-line, the benefits of diversification outweigh the risk of overlapping assets for a small time period.
Tisha Guerrero contributed to this article.