Opportunities
- The correlation of Low Volatility with Growth is near historic negative lows,1 while its correlation with Momentum sits just above its historic lows.
- Since June 2026, the returns of the three factors have diverged: Low Volatility (+7.8%), Growth (-8.4%) and Momentum (-18.3%).2
- The changing correlations and performance divergences potentially create return and risk management opportunities for investors as defensive factors appear to be back in favor.
- For market participants that need to manage their exposures or build diversified factor portfolios, our E-mini Equity Index Factor futures3 provide an ideal toolkit.
Changing equity factor correlations
Historically, both Low Volatility versus Momentum and Low Volatility versus Growth excess return4 correlations can enter negatively correlated territory during periods of prolonged bull markets. The Low Volatility factor, as a defensive factor, and Growth and Momentum, which are cyclical factors, sit at opposite ends of the risk and return spectrum and perform differently in changing market environments, as illustrated in Exhibit 1.
Low Volatility vs. Growth six-month rolling excess return correlation is currently near its historic low at -0.88, compared to its long-term average of -0.25. Similarly, Low Volatility vs. Momentum six-month rolling excess return correlation at -0.66 but below its long-term average of -0.04.
Exhibit 1: Low Volatility vs. Growth and Low Volatility vs. Momentum 6-month rolling excess correlations since 2000
In a current rising growth and rising inflation environment, defensive and cyclical factors respond differently, leading to changing excess return correlations. This appears to be the case when looking at excess factor returns against the S&P 500.
Low Volatility indices tend to have higher exposure to defensive sectors such as utilities and consumer staples, but can be underweight in cyclical sectors such as information technology and consumer discretionary. On the other hand, Growth and Momentum can typically be overweight in cyclical sectors such as technology and communications.
Due to different underlying sector compositions, low volatility, momentum and growth factor returns will differ depending on market conditions.
Exhibit 2: Low Volatility vs. Growth vs. Momentum rebased index performance in 2026
Given the prevailing market conditions, investors may be favoring defensive factors over cyclical ones, as evident by changing short-term correlations among them. Our full suite of Factor futures provide a complete toolkit for investors to adjust and manage their factor exposures.
Resources
- Last seen in 2000 and 2024 - see Exhibit 1
- Performance from June 1, 2026 to November 6, 2026 , as illustrated in Exhibit 2.
- S&P 500® Factor Indices Growth, Value, Low Volatility, Momentum, Quality and on the Dow Jones U.S. Dividend 100 Index
- Excess returns are calculated over S&P 500
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered legal advice, investment advice or the results of actual market experience. Where regulatory matters are summarized, they represent CME Group’s good faith understanding of the applicable requirements.
