caa a22 4500 528785524 20181217030312.0 cr unu---uuuuu 180924e201210 xx s 000 0 eng 10.3929/ethz-b-000058375 doi 10.1038/srep00752 doi (ETHRESEARCH)oai:www.research-collection.ethz.ch:20.500.11850/58375 Quantifying the Behavior of Stock Correlations Under Market Stress [Elektronische Daten] [Tobias Preis, Dror Y. Kenett, H. Eugene Stanley, Dirk Helbing, Eshel Ben-Jacob] Sci Rep Open access ethresearch Understanding correlations in complex systems is crucial in the face of turbulence, such as the ongoing financial crisis. However, in complex systems, such as financial systems, correlations are not constant but instead vary in time. Here we address the question of quantifying state-dependent correlations in stock markets. Reliable estimates of correlations are absolutely necessary to protect a portfolio. We analyze 72 years of daily closing prices of the 30 stocks forming the Dow Jones Industrial Average (DJIA). We find the striking result that the average correlation among these stocks scales linearly with market stress reflected by normalized DJIA index returns on various time scales. Consequently, the diversification effect which should protect a portfolio melts away in times of market losses, just when it would most urgently be needed. Our empirical analysis is consistent with the interesting possibility that one could anticipate diversification breakdowns, guiding the design of protected portfolios. Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported http://creativecommons.org/licenses/by-nc-sa/3.0 ethresearch Statistics ethresearch Statistical physics, thermodynamics and nonlinear dynamics ethresearch Physics ethresearch Information theory and computation ethresearch Preis Tobias joint author Kenett Dror Y. joint author Stanley H. Eugene joint author Helbing Dirk joint author Ben-Jacob Eshel joint author Scientific Reports London : Nature Publishing Group 2, p. 752 2045-2322 http://hdl.handle.net/20.500.11850/58375 text/html WWW-Backlink auf das Repository (Open access) 1 Journal Article ethresearch ETHRESEARCH 856 40 http://hdl.handle.net/20.500.11850/58375 text/html WWW-Backlink auf das Repository (Open access) ETHRESEARCH 700 1- Preis Tobias joint author ETHRESEARCH 700 1- Kenett Dror Y. joint author ETHRESEARCH 700 1- Stanley H. Eugene joint author ETHRESEARCH 700 1- Helbing Dirk joint author ETHRESEARCH 700 1- Ben-Jacob Eshel joint author ETHRESEARCH 773 0- Scientific Reports London : Nature Publishing Group 2, p. 752 2045-2322 BK010053 XK010053 XK010000 ETHRESEARCH ETHRESEARCH ETHRESEARCH Journal Article Open access