A lot of folks are scratching their heads about the recent high correlation between stocks and oil, and it has inspired some high profile musing. Ben Bernanke posits that both stocks and oil are reacting to slowing global growth. Howard Marks recently told my Bloomberg<GO> colleagues on television that any correlation between stocks and oil is proof that investors simply don’t understand the relationship between the two.
But the focus on the recent waltz of stocks and oil misses a larger concern: a multi-decade shift in correlations across risk assets that threatens to crack the foundation of portfolio theory.
