According to high estimates, the realized correlation of S&P 500 constituent stocks has fallen to 11 over the past six months, a level only seen in February 2007 and January 2018 in the last 25 years. Low correlation means that individual stocks fluctuate independently around AI, earnings, and industry logic, offsetting each other and suppressing the actual volatility of the index. Once a macroeconomic shock causes individual stocks to rise and fall in tandem again, the diversification effect weakens, and index volatility may amplify at a faster pace. Cboe also points out that a surge in correlation is usually accompanied by increased systemic risk and tail volatility; in March 2026, the one-month implied correlation rose from approximately 15 to 40, putting rapid pressure on diversified trading.
