Dispersion And Correlation Are Screaming Overbought, Downside Hedging Is Cheap
The Dispersion Index is hitting levels last seen during the Covid pandemic and the tariff crash of April 2025, while Correlation is near all-time lows. This extreme divergence indicates a high risk of market positioning due to the aggressive pursuit of AI stocks. With SPY downside hedges historically cheap, it suggests a potential for significant market corrections. The situation underscores the importance of considering hedging strategies to protect against potential volatility driven by over-concentration in AI-related investments.
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