Stats › Volatility and VIX › Correlation in crashes
Stock correlation in a crash
You've heard the line: in a crash, correlations go to one. Meaning everything falls together and diversification stops helping you precisely when you need it. It's one of those claims that gets repeated so often it stops being examined, which is a shame, because the research behind it is more interesting than the slogan and it says something slightly different.
The careful version is this. Longin and Solnik found that correlation isn't really tied to volatility at all. It's tied to the market trend. Correlation rises in bear markets and doesn't rise in bull markets, and the apparent link to volatility turns out to be a statistical artefact of how people were measuring it. Ang and Chen found the same asymmetry in US stocks, with correlations on downside moves deviating from what a normal distribution implies by 11.6%. That's a narrower claim than the folk version, and it holds up better.
This page gives you what the two papers actually concluded, the market's own implied correlation measure from Cboe, which read 75.08 in June 2010 against 11.62 in June 2026, and an independent check using options positioning that points the same way. I've also been blunt in the notes about what couldn't be verified, because there's a lot of loosely sourced material floating around this topic. Several widely quoted figures are missing here on purpose. If a number isn't on the page, it's because I couldn't stand behind it.
The claim that correlations go to one in a crisis is close to true and the standard version of it is wrong in an important way. Longin and Solnik found that correlation is not related to market volatility as such, but to the market trend: it increases in bear markets and not in bull markets, and multivariate normality is rejected for the negative tail but not the positive tail. Ang and Chen found US stock correlations with the market are much greater on downside moves, deviating from a normal distribution benchmark by 11.6%, with the asymmetry strongest in small caps, value stocks and past losers. Cboe's implied correlation index read 75.08 in June 2010 against 11.62 in June 2026.
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