Do financials pose risks for investors as sector correlations leap to 2008 levels?

Study finds rising inter- and intra-sector correlations

Intra-sector correlations within financials, as well as its correlation to other areas, have risen to levels last seen at the peak of the financial crisis in 2008, leading to diversification concerns for investors.

The rise in correlations has been driven by the strong performance of the sector, with the MSCI World Financials index up 31% over the second half of 2016 versus a 14% rise for the MSCI World. This was driven primarily by an upward move in US treasury yields, as well as the election of Donald Trump as US President in November, which boosted investor expectations of more relaxed banking regulations, rising inflation and rates. According to research from asset manager TOBAM, the financial sector's performance over the period on a relative basis versus cap-weighted benchmarks was the bes...