Though credit correlations have become more positive after the coronavirus pandemic, they’ve been dropping since late 2021. Nevertheless, challenges in achieving portfolio diversification are much more acute in the post-Covid period, writes Stelios Papadopoulos for Structured Credit Investor, citing a recent Credit Benchmark report; “Credit Correlations: Avoiding Unnecessary Risk“.
Stelios Papadopoulos noted in the column:
“Investors can use correlation matrices to fine tune synthetic ABS deal terms by plotting the risk and reward of alternatives, where offered. If issuers and investors can agree on a common benchmark correlation matrix-for example monthly and calibrated to the past three years-they have scope to negotiate pricing with more speed and accuracy to minimize opportunity costs.”
The full original research cited by Structured Credit Investor can be accessed here.
Structured Credit Investor, January 13, 2023.