Correlation: weirdest of the weird sisters

After volatility and dividends, yet another obscure derivative is on the verge of going mainstream. But, with equity correlation, are banks asking too much of the investing public? Theo Casey investigates.

“Like volatility, correlation can itself be treated as an asset class and traded in its own right.”
JP Morgan

“Investing in ‘implicit’ assets such as correlation has become an accepted addition to traditional investments within a portfolio, such as equities and bonds.”
Barclays Capital

“‘Hidden assets’ (such as correlation) are usually uncorrelated with traditional assets, and therefore provide an attractive diversification potential.”
Société Générale

As you can read, the geeks are unanimous.

Correlation is the next big, obscure thing for which they will mould a compelling narrative. As I write, the hedge funds are being administered the spiel. They are told correlation...

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