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New Kind of Correlation Spotted in Factors Obsessing Wall Street

  • Unified moves among groups rise to record, Bernstein data show
  • Search for factor diversification becomes more difficult
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One selling point of a newfangled investment strategy that has swept Wall Street is diversification through factors: buy stocks with high dividends, and your results will vary from those chosen for price momentum. But what if that benefit broke down?

Something like that is happening in the stock market right now, according to researchers at Sanford C. Bernstein & Co., who found that correlations among investment factors have shot to all-time highs. Swings in groups of stocks sorted by traits such as valuation or momentum are mimicking each other in size, the New York-based investment firm found.