Assessing Diversification of S&P 500 and CDX Indexes
研究标普500指数与投资级和高收益信用违约互换（CDX）指数在多个市场周期中的相关性，发现股票与信用市场间的分散化潜力有限，且在全球金融危机期间及之后联动性显著增强。
Insight into correlations of returns is foundational to understanding how a portfolio might behave, particularly during periods of market stress when diversification may be most desired. To evaluate the diversification properties of combining equity and credit in multiasset portfolios, the author studies S&P 500 and investment-grade (IG) and high-yield (HY) credit default swap (CDX) indexes using DCC-GARCH and copulas. With a deep history of CDX data now available, comovement analysis of equity and credit indexes is possible through multiple cycles and two major dislocations, which adds to the body of existing research. Moreover, this approach allows for a review through multiple lenses and evaluation of changes over time. Despite differences in their fundamental drivers of returns, placement in the capital structure, and volatilities, the author finds only modest potential for diversification between equity and CDX markets with similar directional return behaviors between IG and HY CDX and equities. Moreover, the author finds strong evidence of increased comovement, particularly in the period during and just after the Global Financial Crisis.