Since the U.S. debt downgrade and the re-ignition of the European debt crisis, correlation has kicked up impressively, if not predictably. The Financial Times notes that the correlation among big company stock movements have moved to highest levels since the big crash of 1987. The correlation between the biggest 250 stocks in the S&P 500 hit 81 percent recently. The near the all-time high of 88 percent was set during the October 1987 U.S. crash, when the DJIA fell 22 per cent in one session. Correlation also spiked at the time of the fall of Lehman Brothers and the Japanese disaster, hitting about 70. The market and many hedge funds certainly have taken note of high correlation and high volatility, which raises the question of how long this will last. Goldman Sachs thinks correlation is set to decline. "While we expect that the correlation level will remain generally high in the market, we would expect reduced correlation as we enter the third quarter earnings season in October and investors refocus on company fundamentals," according to recent research note that suggested people sell correlation. That would allow people, as explained by Dealbreaker, to make money if the implied correlation we're seeing now ends up being lower in actuality. You want to sell while the premium you can rake in are high. Correlation swaps, covariance swaps and delta-hedge options trades have certainly become bigger business as of late. (I certainly can't claim to be an expert.) Some banks would like to expand the concept beyond hedge funds, however. So we may be hearing more about the niche. Even for institutions, I'm sure the fees are gargantuan. 

For more:
- here's the article
- here's the Dealbreaker item
- more amazing correlations