Keep pulling the thread on S&P 500.
Realized and implied correlation among stocks have fallen to levels never seen before, which is dampening index volatility.
The cost of cross-asset class insurance is too low relative to the forces of uncertainty in the markets.
On July 22nd, the one-month realized correlation across the S&P 500 was 0.4%, a level in the zeroth percentile over the last 15 years.
The one-month implied correlation for the S&P 500 recently fell to an all-time low of approximately 4%.
The top 10 stocks in the S&P 500 currently represent 39.6% of the index's market capitalization.
Key players in the AI industry have heavily overlapping loans, backstops, customer financing, and equity stakes, creating common exposures not reflected in daily stock correlations.
SK Hynix's stock recently experienced a "spot-up, vol-up" dynamic, with its price rising approximately 900% year-over-year while its implied volatility increased from 40 to 120.
The ratio of open interest in call options to put options on SK Hynix reached nearly 100-to-1, with approximately 1 million calls to 10,000 puts.
The 3x leveraged semiconductor ETF, SOXL, peaked with nearly $100 billion of exposure to the SOXX index.
The VIX-EQ recently traded at a level more than three times that of the VIX index, an extreme divergence driven by unprecedentedly low implied correlation.
On July 22nd, the one-month realized correlation across the S&P 500 was 0.4%, representing a 15-year low.
Earlier this year, the average pairwise correlation among the top 10 S&P 500 stocks spiked from approximately 25% to 57% over one month, reaching as high as 78% in a single week.