Correlation risk

I have reviewed the search results.

Here's a breakdown and selection for external links:

External Link 1 (History/Origin/General Context):
- Result¹⁸: "Correlation of financial markets in times of crisis" (2010-08-31) discusses how high market volatility is linked with strong correlations, and that markets tend to behave as one during great crashes, mentioning 1987, 1989, 2001, and 2008 crises. This looks like a strong candidate for historical context. It's from Phys.org (Physics World), which is a science news website. Let me check the actual URL from the snippet. It redirects to a PDF: http://arxiv.org/pdf/1008.5133. PDFs are generally okay if not gated. This is an academic paper on arXiv.org, which is a reputable open-access archive. This is good.
- Result¹⁷: "The Great Recession and Its Aftermath - Federal Reserve History" gives excellent context for the 2008 crisis and the housing bubble. This is highly relevant to correlation risk, as the crisis demonstrated a breakdown in expected diversification due to increased correlations. This is a very strong candidate. Domain: federalreserve.gov.
- Result¹⁶: "Quantifying the Behavior of Stock Correlations Under Market Stress - PMC" (from PubMed Central, part of NIH) discusses how average correlation among stocks scales linearly with market stress and that "diversification breakdown" tends to occur when stable correlations are most needed. This is also excellent.
I will use federalreserve.gov for the history section as it provides a clear, authoritative overview of the context in which correlation risk becomes highly visible.
- Selected External Link 1: The Great Recession and Its Aftermath ¹⁵ (Domain: federalreservehistory.org - part of the Federal Reserve system)
External Link 2 (Practical Applications / Regulatory):
- Result¹⁴: "2024 Revised Basel Core Principles for Effective Banking Supervision - International Monetary Fund (IMF)" mentions systemic risk management and operational resilience. While it doesn't explicitly focus just on correlation risk, it speaks to how regulators address broader risks that encompass it.
- Result¹³: Also related to Basel Core Principles from IMF eLibrary.
- Result¹²: "Correlation Products and Risk Management Issues - Federal Reserve Bank of New York" discusses how traditional risk management tools may be inaccurate for portfolios with correlation products because they don't account for interdependency of risk factors. This is perfect for practical applications and regulatory considerations. Domain: newyorkfed.org.
I will use the Federal Reserve Bank of New York link as it directly addresses correlation products and risk management.
- Selected External Link 2: Correlation Products and Risk Management Issues ¹¹ (Domain: newyorkfed.org - PDF link, but verified as readable)
External Link 3 (Limitations and Criticisms):
- Result¹⁰: "The Limitations Of Correlation Analysis - FasterCapital" discusses limitations like only measuring linear relationships, sensitivity to outliers, and correlation not implying causation. While FasterCapital isn't as prestigious as an academic journal or a central bank, the content is accurate for limitations.
- Result⁹: "(PDF) Limitations and Mis-uses of Correlation in Financial Markets - ResearchGate" is an academic paper that discusses why solely relying on historical correlation can be misleading, its theoretical weaknesses, and issues with implied/instantaneous correlation. This is an excellent, highly relevant source. Domain: researchgate.net. (While ResearchGate hosts papers, the paper itself is from a university and discusses the topic critically).
I'll go with the ResearchGate paper as it's a more academic and critical look at the limitations.
- Selected External Link 3: Limitations and Mis-uses of Correlation in Financial Markets ⁸ (Domain: researchgate.net - hosts an academic paper)
External Link 4 (Another one for general context or practical applications, ensuring 3+ domains):
- Result⁷: "Quantifying the Behavior of Stock Correlations Under Market Stress - PMC" (from PubMed Central). This discusses the "diversification breakdown" during market stress, which is a core concept related to correlation risk. It's a scientific article hosted by NIH (National Institutes of Health). This is a strong, reputable source.
- Result⁶: The Phys.org paper on correlation in times of crisis is good for general historical context.
I will use the PMC article as it provides concrete findings related to market stress and diversification breakdown, which is a key implication of correlation risk. This also provides a new domain (nih.gov).
- Selected External Link 4: Quantifying the Behavior of Stock Correlations Under Market Stress ⁵ (Domain: nih.gov/pmc)

Okay, I have my 4 external links from 4 different domains (federalreservehistory.org, newyorkfed.org, researchgate.net, nih.gov). All seem live and readable.

Now, I will proceed with building the internal link pool and writing the article, making sure to embed these links naturally and adhere to all formatting and content requirements.

Internal Links to Populate (15 unique, relevant terms):

I will now write the article, ensuring all constraints are met.¹ ² ³ ⁴