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Falling stock correlations could signal trading opportunities

TradingPub Admin | January 29, 2013

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If you are looking for a signal that it is a good time to actively trade stocks, the news that these securities have been exhibiting lower correlations might be a good one. 

A measure of the extent to which the prices of the more than 2,000 companies contained in the FTSE All- World Developed Index move in unison has fallen 31 percent since June, which represents the sharpest decline since at least 1993, according to data compiled by Bloomberg and French financial institution Societe Generale SA. 

Having lower correlations makes it easier for individual investors to beat the markets, and the lower tendency of stocks to move together was seen by many to be a signal to purchase equities in 1998 and 2003. The S&P 500 has surged more than 5 percent so far in 2013, which is the highest amount for this part of the year since 1997, according to data provided by the news source. 

Reuters reports that markets tend to display lower correlations when they are not being affected by economic crisis. 

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