Equity-Bond Correlation in the U.S.

Historically, the relationship between US bonds and stocks has been subject to various myths and assumptions. One prevalent belief was in the negative correlation between the two assets, suggesting that when stock prices rose, bond prices fell, and vice versa. This idea fuelled the notion of using bonds as a hedge against stock market downturns, promoting portfolio diversification. Another myth suggested that bonds were inherently safer than stocks, leading investors to allocate more heavily to fixed-income securities for stability.

However, the mid-1990s marked a significant regime change in this relationship. Despite these historical beliefs, empirical evidence over the past three decades has shown a predominant positive 6-months daily correlation between US bonds and stocks on average.

Would like to replicate the analysis? Check the resources below:

DataLab: https://lnkd.in/dxxYcHb9

Code: https://lnkd.in/dhR4zFDF

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