Presented below is a snapshot of a correlation matrix of all 500 S&P index components (equal weighted). Values were shaded to correspond with low correlations (red) and high correlations (green). Correlations based on returns from present going back to Jan 1, 2011.

The full matrix, composed of 250,000 individual calculation results was generated by the RiskAPI system in about 10 seconds. For those interested, the full result set is available for download here.

The results above were calculated using The RiskAPI Add-In, our unique software client which allows fund managers to access a whole spectrum of on-demand portfolio risk analysis calculations.

Earlier this year, the CME added a whole range of S&P E-mini sector index futures to their universe of available instruments. These contracts were created to provide a mechanism to directly hedge sector exposure according to the S&P Select Sector group of indices.

PortfolioScience has followed suit and introduced symbols for all CME S&P sector index futures contracts. With regards to current market conditions, the correlations of each of these sectors to the broader S&P 500 index are directly relevant. Currently, YTD correlation for each of the cash indices stands at:

Save for Energy and Utilities, most of these sectors are showing fairly high correlations to the market. This is likely a result of equities as an asset class suffering from systemic volatility due to the effects of the financial crisis rearing its head recently. Another useful analysis is the sector cross-correlations, which are presented below in the form of a correlation matrix. All calculations are using YTD data:

Using Excel's "conditional formatting" feature, the correlation matrix we initially generated using the RiskAPI Add-In was modified to highlight higher correlations in red and lower correlations in yellow. Note that Utilities (IXU) currently has the lowest cross-correlation of the group.

Since July, the correlation of Gold to the S&P 500 index has fallen off a cliff. This behavior has highlighted the magnitude of the flight-to-safety trade that has propelled gold to record highs this summer. The chart below illustrates this dramatic de-coupling.

A common opinion held throughout QE1 & 2 was that equities were benefiting from an inflationary environment. This may be at an end:

The chart above was calculated using The RiskAPI Add-In, our unique software client which allows fund managers to access a whole spectrum of on-demand portfolio risk analysis calculations.