Modeling Asset Correlation: Theory and Practice

Download PDF Introduction Correlation is a pervasive concept in financial markets. It is studied by investors looking for the most reliable way to hedge their exposure while financial products that offer a directional correlation exposure also became substantially more liquid in recent years. Moreover, the substantial mispricing of correlation risk Read more…

The future of gold: the full hedge role is at risk

Historically, correlation among different risky assets has increased during periods of financial crisis: losses in one market spread to others, thus creating “contagion”. The increased correlation phenomenon is confirmed by our previous analysis on the topic (https://bsic.it/new-old-high-correlation/). Furthermore, there is also the so-called “flight to quality”, meaning that investors move Read more…

The new (old) high correlation

Empirical evidence suggests that correlation between asset classes tends to spike during a period of market crisis, because investors panic and sell indiscriminately. This phenomenon is usually short-lived and correlation returns to a normal level as the market stabilizes. During the 2008 financial crisis, this effect was amplified by a Read more…