Based on New York Times's today review, talked about European crisis, NYT stated in their deadline
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| picture courtesy of eurofm.org |
Here they are the quote:
Europe’s Markets, No Longer in Lock Step
Money managers point to signs like these: Investors barely flinched during the banking crisis last month in Cyprus, an indication that the Continent may be moving past its manic phase. The Vstoxx index, a measure of stock market volatility in the euro zone, is about half of what it was in the fall of 2011, when the region’s debt crisis spread to Greece and Italy. And Europe has actually been the best-performing major overseas market since the start of 2012, with equities surging nearly 19 percent.
“The markets get that it’s not 2011 anymore,” said Edward A. Gray, a co-manager of theDelaware International Value Equity fund.
New York Times, 7th April 2013
If we want to analyze what is the meaning of lock step, the easy way to translate it is
we have several options to choose our stock and make the most effective Portfolio, with reasonable aggregate risk, and suited with our expected return.
The problem is, during the crisis, most of stock has the same behavior and it affect to the condition that we don't have so many choice to form the effective portfolio. One rule of thumb to measure effective portfolio is based on the aggregate correlation which tend to be zero or negative. So how is it look like during the crisis?
Based on aforementioned idea, I will try to make small research within top 50 most blue chip stock in Europe which belongs to STOXX 50. We will try to do simple research to test whether in 2012 the condition of the stock market in europe still in the same situation like the previous years or not. I take 3 samples from the company that makes highest return today and also from the lowest. All of these stocks is registered as the most liquid stock in Europe, which is known as STOXX 50
and also top losers
If we follow the rule of thumb, there is no any dubious that the correlation among these stocks are supposed to be negative, lets see hows their correlation in the graph and in the table below
| FTE | ENEL | BAYRY | LVMUY | UCG |
|---|
| 1 | 1.0000 | 0.4487 | 0.3381 | 0.2084 | 0.2504 |
| 2 | 0.4487 | 1.0000 | 0.5410 | 0.3220 | 0.3065 |
| 3 | 0.3381 | 0.5410 | 1.0000 | 0.5882 | 0.2960 |
| 4 | 0.2084 | 0.3220 | 0.5882 | 1.0000 | 0.2634 |
| 5 | 0.2504 | 0.3065 | 0.2960 | 0.2634 | 1.0000
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If we try to analyze deeply the graphic, the correlation among these stocks is started to be more since the First quarter of 2012. It shows that somehow the condition after 2012 in European market is getting better. Even though its not fully recover.
Based on the rule of effective portfolio, this stock should offside and balance each other, therefore the correlation is supposed to be negative.
To sum up, I agree with the news from NYT that European Stock Market is not in lock step position anymore. But somehow the positive correlation among these sample stocks still indicate that Investor does not have chance to make any better portfolio.
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