Definition of ‘clutch’

The market engagement event or process, when returns on asset classes revert to their historical or traditional patterns of correlation. This is in contrast to decoupling, which occurs when asset classes to break away from their traditional correlations. The behavior of various asset classes relative to each other and show patterns of correlation in the ground academic theory and empirical data over time. Sometimes correlations to decouple, causing observers of the market, to seek an explanation. The isolation period may be short or long, but in the end the behavior of a class of assets should recouple to historical norms. It will be rare if you cut it off, but if it occurs, will be that an external factor not present in conventional models now at work.

Breaking down the ‘clutch’

There are many sets of market correlations, which are taken as a given. Some examples: rising bond yield means the strengthening of the national currency; an increase in interest rates will cause stock markets will slow down in appreciation or even fall, while the fall in interest rates to support stock markets; strengthening of the currencies of export-dependent countries leads to a fall in the stock market; the rise in oil prices and other commodity markets to accompany the weakening of the U.S. dollar.

Markets can behave irrationally, so it should not be a surprise for long relationship, supported by decades of data, which can easily be depicted on the chart – break down over time. Interchange is becoming more and more common; even the Federal reserve was still confused at that time, the market of “mystery” (Chairman Alan Greenspan about the reduction in short-term and long-term rates in an environment of rising interest rates the fed). However, the clutch for all asset classes is still expected of scientists and analysts who make a living predicting the behavior of markets, but they may find it necessary to continually adjust their models to remain aware of the complexities of the market.

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