Unsynced

There is another sign that markets are going through a stressful period. As you can see in the chart below, the correlation between Long term treasury, the S&P500 and the U.S. dollar is hitting new highs over the last 7 years. These correlation spikes are the ones that can brake quant hedge fund models, and can cause disruption. In the past, in times of trouble, treasuries and the dollar where the global safe havens investors chose to reduce risks in their portfolios, but in the current episode, that hasn’t been working. It also affects the behavior of the balance portfolio, the backbone of wealth management, as it is based on the normal functioning of markets. We might be out of equilibrium for a while, until trade negotiations show a path to the desired rebalancing. Until then, we’ll be out of sync, with negative implications for traditional portfolio construction.

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