CIO Insights: Our Teams Explore Market Correlations

In our view, declining correlations support active management as well as our adherence to bottom-up fundamental analysis to select individual stocks on their own merits. This quarter, the chief investment officers from each of our investment disciplines explore these and other correlation ramifications in our upcoming CIO Insights blog posts.

Read the full Q2 2014 CIO Insights introduction: Declining Correlations Support Our Active Management Approaches

Equity correlations have surged and dipped at various times since the 2008 Financial Crisis, most recently rising in 2013, before dipping this year. (A correlation of 1.0 means a stock and its index move in perfect tandem.) Stocks are not moving as much in lockstep with an overall index or with each other but rather on the merits of the underlying company.

Summary

  • Equity market correlations between securities and their indices have fallen significantly.
  • Post-Financial Crisis central bank intervention is finally being withdrawn and investors are monitoring the merits of individual companies rather than macroeconomically based broad market movements.
  • We believe this is good news for stock pickers and our active investment management approaches.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

©2014 Standard & Poor’s Financial Services LLC. The S&P 500® Index is composed of 500 selected common stocks most of which are listed on the New York Stock Exchange.

The opinions expressed are those of G. David MacEwen and Victor Zhang and are no guarantee of the future performance of any American Century Investments portfolio.

For educational use only. This information is not intended to serve as investment advice.