Market Analysis6 min read
Correlation Breakdown Strategy: Trading During Stress Events
Correlations break during market stress. Learn how to identify and trade these rare setups. Spot when correlated pairs decouple and trade the rare setups.
What Is Correlation Breakdown?
When correlated instruments diverge during stress, a reversion opportunity exists.
Example
March 2020: Gold dropped with stocks (margin calls) then rallied 15% while equities recovered. Buying the breakdown was profitable.
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70-80% of retail investor accounts lose money when trading CFDs. Backtesting does not guarantee future results. Always consider whether you can afford the potential loss of your capital.