Goldman Sees Opportunities in Some Credit-Equity Dislocations

imageEconomy3 hours ago (Mar 20, 2020 12:36AM ET)

(Bloomberg) — Market dislocations can be used to investors’ advantage in times of turmoil, and Goldman Sachs Group Inc (NYSE:GS). is recommending one way to do that.

Stocks that have underperformed five-year credit default swap spreads and that the firm rates a “buy” could be good candidates for the sale of bearish put options, strategists led by Vishal Vivek wrote in a note Wednesday. They exclude the energy sector given its significant dependence on the price of oil.

“The market is trading with a high degree of correlation, implying that investors have had little time to differentiate between stocks,” the team wrote in the note. “The rapid increase in put prices relative to calls points to opportunities to sell puts on names which have potentially oversold.”

Stocks have been moving increasingly in tandem, hit by turbulence due to the worsening economic impact of the coronavirus. A Cboe Global Markets Inc. gauge tracking implied correlation for S&P 500 Index shares has jumped to its highest level since 2011. But it’s not just equities: A Morgan Stanley (NYSE:MS) measure that blends global cross-asset correlations has hit its highest level ever.

The list of stocks where equity has underperformed credit includes Lincoln National Corp (NYSE:LNC)., L Brands Inc (NYSE:LB)., American International Group Inc (NYSE:AIG)., United Airlines Holdings Inc., Prudential Financial Inc (NYSE:PRU). and Citigroup Inc (NYSE:C)., according to the Goldman Sachs note.

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Goldman Sees Opportunities in Some Credit-Equity Dislocations

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