Sometimes, it just doesn't matter how strong a company's earnings prospects are. When volatility spikes in the financial markets, traders and investors will just dump everything.
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This is one of the more intuitive manifestations of behavioral biases in the stock market.
RBC Capital Markets' Jonathan Golub shared this telling chart in his new 84-page Investment Strategy Playbook.
It tracks the fluctuations of S&P 500 pairwise correlations and the CBOE Volatility Index (VIX). The correlations reflect the degree to which stocks move in the same direction with each other. The VIX is a rough reflection of fear and panic in the market.
As you can see, spikes in the VIX coincide lead correlations.
