Are correlations normalizing?

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The relationship between equities and Treasuries has started to return to historical norms.

  • The positive correlation between equities and Treasuries — which frustrated investors looking to diversify across asset classes in 2022 — peaked late last year. Since then, the correlation has moved lower, and recently turned negative.


  • For investors, this means that equities and Treasuries are more likely to move in different directions, and that some traditional asset class hedges might be in play again.


  • It’s important to note that there are broader measures of bond performance (e.g., the Bloomberg US Aggregate Bond Index) that may not have turned yet.


  • An active approach can help adjust asset allocation decisions to changing correlations. And it can be important to successfully navigating this environment.


Line chart showing that the 12-week rolling correlations between equities and Treasuries peaked in December 2022. Since then, it has been in decline and turned negative in March 2023.


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