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A concerted flight to safety
Looking at a handful of different flight-to-safety trades, it’s evident that there has been a lot of risk-off positioning in recent months.
Ratios of the following four paired trades have had an extremely high positive correlation over the past 3 months:
- Defensive / Cyclical
- Large Cap / Small Cap
- Inv Grade / High Yield
- Gold / Copper
- Low Volatility / High Beta
The correlations among the various is to a point that has typically coincided with extreme risk-off behavior among investors.
Over the past 30 years, when the correlations became this high, it typically led to good longer-term returns, though there were two large outliers.
S&P 500 Value Index
As Bloomberg noted, the S&P 500 Value Index has broken out to a new all-time high. It's the first one in well over a year.
When the Value Index rallied to a new all-time high for the first time in 200+ days, it typically faced weakness over the next 1-2 months, even if it rallied further over the next 6 months.
Keep in mind that the sample size is small.
The post titled 5 Trades Show Flight-To-Safety was originally published as on SentimenTrader.com on 2019-10-25.
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