Realized correlation among the stocks in Goldman Sachs VIP basket of hedge fund longs has also more than quadrupled over the past month, she added. That’s a sign some of the carnage is driven by the community checking out from hedge fund hotels.
At the same time, signs that the pendulum has swung too far away from risk assets has some on Wall Street sniffing out an ideal buying opportunity.
Christopher Harvey, head of equity strategy at Wells Fargo Securities, notes that the realized swings in the S&P 500 compared to a basket of low-volatility stocks from the benchmark gauge has reached "risk aversion extremes."
For the Nasdaq 100, the spread is even wider -- the most since 2009.
“Once we hit a risk aversion extreme, the trend usually reverses itself over the next 1-3 months with the market rewarding ‘risk-on’ stocks over ‘risk aversion’ names,” writes Harvey. “Current vol spread levels support our view that now is the time to take on risk.”
Some of his high-quality recommendations within the Nasdaq 100 include Facebook, Microsoft, PayPal and Nvidia.
This article was provided by Bloomberg News.