What is it about?
Analyzing market states of the S&P 500 components on a time horizon January 3, 2006 to August 10, 2023, we found the appearance of a new market state not previously seen and we shall dicsuss its possible implications as an isolated state or as a beginning of a new general market condition. We study this in terms of the Pearson correlation matrix and relative correlation with respect to the S&P 500 index. In both cases the anomaly shows strongly.
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Why is it important?
Considering that the pandemic started in March 2020, the relation to COVID seemed somewhat tenuous, but we have to take into account that the average correlation, if it is large, dominates the market behavior as this amounts to a panic sell-off. Precisely this occured. We also look into the behavior of relative correlations. Taking the standard definition of relative correlations with respect to the S&P 500 index, we see, that the unusual state begins in March 2020 rather than in June 2020. This establishes the appearance of a new market state.
Perspectives
We established emergence of the COVID state however, we could not determine if this new state indicates the beginning of a changed market behavior or if it essentially ends with COVID.
MANAN VYAS
Institute of Physical Sciences, UNAM, Mexico
Read the Original
This page is a summary of: COVID anomaly in the correlation analysis of S&P 500 market states, PLoS ONE, April 2024, PLOS,
DOI: 10.1371/journal.pone.0301238.
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