One drop all drop contagion in a high correlated global village

What appears to be different markets to uninformed participants are highly correlated when you overlay them on a chart like JP225, SG30 and AUDJPY here. In between, pockets of out-performance fill us with a sense of identity and accomplishment. Put that outperformance aside, these markets are highly synchronised automatons. One drop all drop.

JP225 - SG30 - AUDJPY overlay

JP225 – SG30 – AUDJPY overlay


It really shouldn’t matter to a speculator what caused this round of correction/crash. It could be a spike in the VIX complex, rising bond yields or runaway algorithm-trading. It could even be caused by a sinister force. If there is a crash somewhere that really hurts, it would be followed by margin calls. These margin calls will trigger sell orders in other assets to raise cash. Contagion.

The bright side of this high level of correlation and connectivity – if we manage to hang on without losing our pants, one drop all drop should be swiftly followed by one rally all rally. Timing indeterminate. We are all musketeers now.

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