Correlations Continued. . .

Great article posted on SA about the recent evolution of correlations between asset classes. Furthers the theme of the Felix Salmon article in yesterday's Reading List.

Like Salmon, this article posits that as more people diversify into other asset classes, correlation risk increases.

The increase in correlation between asset classes over the last decade has been huge. The article says:

Between 1991 and 1994 the correlations between the S&P 500 and high-yield bonds was ~0.2-0.3; international stocks ~0.3-0.4; REITs ~0.3 and was negligible in commodities.

By early 2008 those numbers looked like: ~0.7-0.8 for high yield bonds; ~0.7-0.8 for international stocks; ~0.6-0.7 for REITs and slightly negative ~-0.2 to -0.3 for commodities.