“In a financial crisis, all correlations go to one”

Entry in progress—B.P.
     
Google Books
Handbook of Heavy Tailed Distributions in Finance
By Svetlozar T. Rachev
Amsterdam: Elsevier
2003
Pg. 70:
Tail dependence
There is a saying in finance that in times of stress all correlations go to one. While it shows that the financial community uses linear correlation to describe any measure of dependence, it can also serve as motivation for the next measure of dependence, known as tail dependence.
 
Google Finance: Discussions for DOW JONES INDUSTRIAL AVERAGE INDEX
From: .(JavaScript must be enabled to view this email address)
Date: Sat, 28 Apr 2007 02:59:07 -0000
Local: Fri, Apr 27 2007 8:59 pm
Subject: Re: Probabilities
 
“If a decline in stocks occurs in the U.S., it will happen in Europe. If they get it in Europe, it will happen in the emerging markets. Another argument being made is that there are places to hide when this type of correction comes. I don’t think that’s right, either. You are going to see ALL CORRELATIONS GO TO ONE [emphasis mine]. Once you get into a steep decline, not a 3%, 4%, 5% garden-variety decline but something deeper, liquidity becomes the issue. Even though smaller markets have more flows than they did five or 10 years ago, they have higher beta. When people start to reduce risk, that’s what they’ll sell. ”
 
Larry Jeddeloh, Market Intelligence Report
Former chief investment strategist at Union Bank of Switzerland
Barrons, Apr 2 2007
 
MarketTicker Forums
Sandra
2007-07-22 21:33:55
Yes, there is some saying, but I don’t remember it exactly….something like “In a crisis, all correlations go to one.” Meaning that both hedge and asset move in the same direction instead of opposite directions. That’s what did LTCM in.
   
AllAboutAlpha.com
Why the common expression “all correlations go to one” may be overstated
Feb 28th, 2008 | Filed under: CAPM / Alpha Theory | By: Alpha Male  
(...)
Since 1987, the term “correlations go to one in times of stress” has become axiomatic in financial markets.  But does research actually back up his common assumption?
   
Wall Street Journal
HEARD ON THE STREET
NOVEMBER 25, 2008.
Rationale on Antitrust Is Put in Play
By LIAM DENNING
In a crisis, all correlations go to one.
 
And not only with asset prices. It also could apply to the relationships at the heart of antitrust regulation: between consumers, labor and owners.
 
The Atlantic
What’s the real value of Harvard’s endowment?
Megan McArdle
Dec 23 2008, 1:14 PM ET
(...)
But as Brad DeLong has noted, in a financial crisis all correlations go to one.
     
Google Books
How Markets Fail:
The Logic of Economic Calamities
By John Cassidy
New York, NY: Farrar, Straus and Giroux
2009
Pg. 277:
During a period of market upheaval, as a Wall Street saying has it, “all correlations go to one.” Investors panic and sell many different types of assets at the same time.
   
The Semi-Daily Journal of Economist J. Bradford DeLong
February 23, 2009
All Correlations Are Equal to One
(...)
Or, as Charlie Kindleberger used to say back around 1980: in a financial crisis everything moves together—all correlations are one.
 
The Atlantic
In Search of the Perfect Pension
Megan McArdle
Apr 16 2009, 5:18 PM ET
(...)
Of course, maybe we should just have people pay out of current tax dollars.  That avoids the asset problem, but introduces another one.  Remember, in a financial crisis, all correlations go to one.  That means tax revenues, too.  Any potential source of funding for retirement will be severely undercut by a financial crisis.
 
Morningstar
Ongoing U.S. Recovery, Fear in Middle East
Morningstar Volatility Report for Jan. 28, 2011.
(...)
As the Wall Street saying goes, “In a crisis, all correlations go to one.”
 
Google Books
Emerging Markets for Dummies
By Ann C. Logue
For Dummies
2011
Pg. ?:
In times of intense stress, it’s said that all correlations go to one. That means that no matter what an investment’s historic performance is or what its own unique characteristics are, it will get pulled down like everything else.