Correlation between commodities and equities has been falling

There has been a delinking between equities and commodities over the last few months as each market is following its own path. It seems like the search for yield and return pushed stocks higher over the last year but had the opposite effect in commodities which has been buffeted by excess supply. The distinction between commodities and equities means that we should not expect a long-run strong positive correlation between the two. If there is a common factor like demand growth, there will be a positive correlation but if there are supply shocks in commodities, they may move in the opposite directions. 

More recently, there has been a number of supply shocks in commodities that have not translated into anything that would move stocks in the same direction. Commodities will be driven by macro demand effects but in the short-run logistic or supply shocks will have a stronger impact on these markets. The decline in correlation from post crisis highs has been significant. The correlation between the DJUBS index and the S&P 500 has sustained low levels for most of 2013, some of the lowest levels since 2008. The 120-day rolling correlation are now around .35, about half of what we have seen in the post crisis period.

There also is a significant decline in cross market correlations within the commodity sector. The correlations have been declining since the end of 2010 and are again at some of the lowest  levels since 2008.markets are now moving to their unique supply and demand conditions.