Since the beginning of this year, that correlation has jumped to 60% or even higher. On some three-day stretches it has even hit 90%.
That’s because when prices of some key assets — like oil — fall dramatically, investors have a tendency to start selling across the board, without much thought. It’s similar to what happened during the financial crisis or even the panic sell-off in early October.
“It’s the pain trade,” says Block. “Stock prices aren’t just driven by fundamentals. They’re driven by who owns what.”
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