Stock market correlation is at a seven-year low


For at least six years, stock pickers have tried to overcome an environment where everything moved up and down together, making it extremely difficult to find opportunities.

In 2015, and particularly as of late, some relief has come.

Amid a lot of bad things happening to the market—think slumping oil prices, global growth weakness and the colliding and conflicting goals of the world's central banks—one development has loomed as a marked positive: Declining correlation between individual stocks and sectors.

Correlation is simply a percentage or ratio measure of how individual stocks, sectors or asset classes move up and down at the same time.

High-correlation environments, like the markets have seen since the Great Recession and the Federal Reserve's aggressive intervention efforts, present challenges to active managers and those looking to employ diversified portfolios. Correlations among the 's 10 sectors peaked at 95 percent in 2011, meaning almost perfect movements in the same direction, according to Convergex, a New York-based brokerage.

By one measure, though, the correlation level is now around its lowest in seven years. The CBOE S&P 500 Implied Correlation Index was below 49 Thursday and fell below 44 over the past few weeks, indicating a sharp downturn to the lowest level since August 2008. The ICI, as traders call it, is an options-based measure of the S&P 500's top 50 companies.

With that relatively low correlations level should come opportunities.