Stock's Correlation with Treasury Bonds is the Single Most Significant Factor Explaining Performance Over the Last 3 Months

We've noted before how we group all 1607 companies in the MSCI World Index into deciles based on various fundamental and market factors, and then observe which factors were significant in explaining performance over various time periods. We call this our Factor Scoring approach and it helps us disaggregate seemingly random market movements into component drivers.

Over the last three months the most significant variable in explaining individual stock performance was each stock's correlation with the 10 year treasury bond, with an R-squared of .91 (an R-squared over .7 is considered statistically significant). In the number two slot was Beta, with an R-squared of .89 and not far behind was each stock's correlation to TIPS yields. This has our attention as we may now be in a rising yield environment in a Post QE World. In such an environment one wants to be exposed to stocks that outperform the market when yields rise.