Implied Correlation Update

[Billy]

First, here is a link to an excellent article and commentary to refresh our mind about what this is all about:
http://www.indexuniverse.com/section....html?Itemid=3

The first chart below is my own tracking of the average implied correlation. As long as the uptrending support line is not broken, the odds for outperformance do favor trading ETFs versus individual stocks picking. A rising indicator is also bearish as correlation rises with fear and market risk-aversion. A break below the trendline would then imply a return to overall confidence and a bullish market, helping more individual leading stocks to outperform.



The second chart is the ratio of the January 2013 implied correlation index divided by the January 2012 implied correlation index. It reflects the evolution of short term bullish hedging strategies compared to longer term hedging strategies, with a ratio of 1 being timeframe neutral. While there has been a clear short term bearishness since early August, a tentative reversal of strategy is currently under way.
Billy