📈  Chart of the Week 9/13/2026

By Michael Allison, CFA

📉 When Everything Moves Together

This week’s Chart might make one a little uneasy, and that’s precisely because it looks so calm.

Realized correlation across the S&P 500 has fallen to roughly 0.10, one of the lowest readings in 25 years. Stocks are doing their own thing. The AI winners rip, staples drift, energy zigs while tech zags. On the surface, a stock-picker’s paradise.

But consider the last two times correlations sank to these levels. February 2007 and January 2018.

Feb 2007: correlations bottomed. The market felt bulletproof after a long, quiet climb. Then on February 27 an 8.8% drop in Shanghai spilled over, the S&P dropped about 3.5% in a day, and the VIX spiked more than 60%. Markets shrugged it off and made new highs into October. Then correlation went vertical through the 2008 collapse and stayed pinned near 1 as the S&P lost 57%.

Jan 2018: same setup. 2017 was the calmest year on record, and January’s melt-up pushed correlation to the floor. Two weeks later came Volmageddon. The VIX more than doubled on February 5, the short-vol XIV fund got wiped out, and the S&P fell about 10% in nine trading days.

Then COVID, for good measure. Correlation wasn’t at a record low going in, but the mechanism was essentially the same. In March 2020 pretty much everything sold off together, the VIX closed at an all-time high of 82.69, and the S&P dropped 34% in 33 days.

The pattern of returns has been generally consistent, and a little cruel.

Before the trough: strong, steady gains. That’s what drives correlation down in the first place. Individual stories dominate, volatility bleeds out, and diversification looks like it’s working beautifully.

During the trough: more of the same, which is the whole problem. Low correlations are the market’s way of telling us that nobody’s worried about the same thing at the same time.

After the trough: some sort of macro shock arrives and correlations spike. Everything in investors’ portfolios starts moving in lockstep, downward, and the diversification investors thought they had evaporates at the worst possible moment. Across asset classes, the same thing happens. In 2008 credit and equities went down together. In 2022 so did stocks and bonds, the 60/40’s worst year in a generation, maybe ever.

But here’s the message, and I think it matters. Low correlations set the stage. They can’t tell you when the show starts. February 2007 preceded the real damage by more than a year. January 2018 preceded it by two weeks. This week’s Chart tells you the fuel is dry. It says nothing about when the match gets lit.

What’s my take on the current level of 0.10? Cheap insurance. When correlations are this low, so is the cost of protecting against the day they aren’t. That’s usually the best time to buy the hedge nobody wants, back when everybody’s still convinced they don’t need it.

Sources: CNBC, Feb 27 2007 selloff; Bloomberg, “The Day the VIX Doubled” (Volmageddon); CNBC, VIX record close 82.69, Mar 16 2020

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