Markets · 6 pages · 12 min
How correlation changes in a panic
In a panic, many risky assets fall together as a shared rush for liquidity overwhelms old differences.
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From the opening
Correlation describes how strongly two assets move together, and that strength is not a fixed law of nature. In a panic it often rises, because investors sell what they can, borrow less, and respond to one shared fear rather than to each asset's private story. The opening covers calm correlations are not fixed, forced selling links portfolios, and funding can be the hidden tie.
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Inside
- Calm correlations are not fixed
- Forced selling links portfolios
- Funding can be the hidden tie
- The safest paper may diverge
- Where the idea stops applying
- A distinction worth keeping
Sources
- Crisis co-movement
- Flight to liquidity