Lower Volatility, Higher Returns As Cross Asset Correlation Falls: UBS

UBS uncovers in its monthly prime brokerage report that after 4 months of moving in tandem, S&P 500 index and yield on U.S treasuries diverged in February. The analysts also found that their clients switched from net short positioning in US treasuries to neutral in February, however 10-yr USTs were still in the net short zone according to the CFTC report.  Lower volatility in portfolios as correlation drops The divergence between S&P500 price index and 10-year yield means that cross-asset correlation has sharply dropped. This relationship has been unusually high since fear of taper gripped the markets in June of last year….