Ben Levisohn in the 8/15/15 Barron’s with an important stat for active managers:
It would be easy to look at the disconnect between the S&P; 500 and its components and see it is a sign of trouble ahead. But there is another explanation as to why the market has been relatively stable: Stocks have become increasingly less likely to move in the same direction as the S&P; 500. There’s a measure for this—implied correlation. Implied correlation measures how much options traders expect any given individual stock to trade in lock-step with the benchmark.
In bad times, implied correlation surges higher, approaching 100%, as it did during the financial crisis, when it didn’t matter what you owned, everything was falling. When implied correlation falls, it means that investors are more inclined to trade each stock according to its own merits. And wouldn’t you know? Last week, implied correlation fell below 43% for the first time since 2008.
