However, the study also revealed that correlations of index stocks are more sensitive to changes in index trading activity than non-index securities.
Consequently, the findings suggest that the growing popularity of ETFs may also be making it harder for active managers to generate alpha, writes Michael Ide for ValueWalk.
Looking ahead, the research also indicate that during bull markets, stock investors may continue to see high correlation or lockstep movements in the equities markets as more keep piling into ETFs to capture broad returns. However, this implies that equity correlation could fall and more individual stocks could stand out if demand for broad index-based stock ETFs begin to fall.
For more information on ETFs, visit our ETF 101 category.