European Equity Correlations Have Dramatically Declined

by Eric Bush, CFA, Gavekal Capital

European stocks are once again adding diversification for equity investors. The 65-day correlation between European stocks and the MSCI World Index has fallen to 47% from 74% on 9/8/16. That peak in correlation was the highest in over four years. And correlations are falling when we break out European equity by sector as well. Below are some of the most dramatic examples.


Consumer staples had its highest correlation since May 2010 earlier this month. It has now fallen back into the range it has been in for the last four years.


The 65-day correlation for financials spiked to nearly 80%. It has since fallen below 50 % and is at the lowest levels since January.


Lastly, utilities 65-day correlation actually breached 80% which was the highest correlation on record going back to 2000. Just like the rest of the European equity market, it has since fallen back into the range it has usually traded in for the past several years.



Copyright © Gavekal Capital

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