This market signal called the tech selloff. Now it’s sending another warning.

The recent tech selloff has sent a warning signal to investors, and another indicator is now flashing a similar warning. The correlation between individual stocks has dropped to a record low, indicating that stocks are moving independently of each other. This divergence can be a sign of market instability, as it suggests that investors are making stock-specific decisions rather than reacting to broader market trends.

A reversion to the mean in correlations would typically be seen as a positive development, as it implies that stocks are once again moving in tandem with the broader market. However, in this case, a reversion to the mean may not be a good thing for the market. If correlations were to increase, it could be a sign that investors are becoming risk-averse and are dumping stocks indiscriminately, leading to a broader market selloff.

Fund managers should keep a close eye on this development, as it could have implications for portfolio diversification and risk management. If correlations were to increase, it may become more challenging for active managers to outperform the market, as stock-specific strategies may no longer be effective. To watch next: The behavior of individual stocks and the broader market in the coming weeks, as well as any changes in investor sentiment and risk appetite.

Originally reported by marketwatch.com. FundNews adds analysis for finance & markets readers.