What Dropping Correlations Mean to You

While most people look just at the way the S&P 500 index and Dow Jones Industrial Average are rising (or falling) to measure the health of the stock market, there are underlying figures that can show even more about what's going on. One of these measures is the market's correlation. Do stocks tend to move together as a group, or are they rising and falling on their own?

The answer this year is that stocks have tended to move on their own. In May, the average correlation of the 10 S&P 500 large-cap sectors to the index itself was just 70.6 percent, which is the second-lowest that figure has been since October 2009. And it's been dropping: The correlation was at 79 percent in April, 85 percent three months ago and around 95 percent during 2011.

The upshot is that investors can't just depend on the market itself to generate their profits. Stock-picking is becoming more and more important - a landscape in which the active management that Echelon Wealth Strategies relies on is more likely to thrive, and serve its clients well.