An increase in correlation between dollar and the Actions This year it could mean that The US currency is no longer a strong diversifier for shares of sharesaccording to analysts of JP Morgan Chase.
The bank indicated that The weekly yields of the dollar index, which measures the green ticket in front of a basket of homologous currencies, and the local MSCI World shows increasing positive correlations.
On a correlation coefficients from -1 to +1, a positive figure generally indicates that The two assets tend to move in the same direction.
The coefficient was in negative territory in the period after the pandemic until last year and that there were also dispersed correlation periods below zero since the 1980s.
“In other words, this year’s increase in the dollar-rations to zero or slightly positive territory seems plus normalization That the appearance of a new and unusual regime, “the strategists wrote.
Dollar and shares: correlation increases
While this could imply that the dollar does not provide as much benefit as diversifier for investors in shares, analysts said it is important to emphasize that The dollar-action correlation level “matters as much as the sign.”
At levels of zero or slightly above, the range in 2025 is “too low to significantly amplify the volatility of a portfolio of US actions without currency coverage.”
In theory, This reduced diversification benefit could weigh on the dollar in the futureThe analysts added. However, historically there has been little evidence that the changes in the dollar-ups correlation will create winds against the dollar, they argued.
“We suspect that one reason is that the decision on whether to cover the exchange risk in a portfolio of actions is not simple”they wrote.
“Unless the dollar-ups correlation becomes persistent and decidedly positive for a prolonged period, such as the range of 0.2-0.4 observed from the mid-1980s to 2007, It is unlikely that the coverage of exchange risk in an actions portfolio provides a significant and sustained reduction of general volatility“They closed.
Source: Ambito
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