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The Current Correlation in Stocks and Bonds

If you’re not paying close attention, you may be missing the stealthily increasing positive correlation between stocks and bonds.

Let’s cut through the charts and focus on the “Positive Correlation Creep” that’s taking place as seen in SPY (S&P 500 ETF) and TLT (a popular longer-term Treasury bond fund ETF).

SPY (Green) and TLT (Red):

In general, Stocks serve as a “Risk-On” market where money flows when economic conditions are good while Bonds serve as a “Risk-Off” market where money seeks safety from potential future downturns in the stock market or economy.

That’s an over-simplification, but it does allow a departure point for comparison of how Stocks and Bonds trend – do they trend together in the same direction (which would be a positive correlation) or do they trend in opposite directions (a negative correlation).

The chart above plots stocks (green) and bonds (red) on the Daily Chart from mid-2012 to present.

The indicator at the bottom is Stock Chart’s Correlation Tool which calculates a rolling Correlation of 60 days.

Filed in: Technical Analysis

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