Instead of computing a classical correlation between an asset and an index, it is better to compute the correlation during marginal asset distributions or conditional asset distributions. This will capture both assets non-normalities and codependence asymmetries. If the conditional correlation is higher than the classical correlation, then the dependence between the asset and the index is unstable and asset’s extreme risks should be measured.
Correlation matrix between hedge funds and indices:
Bear correlation matrix: when the numbers below are higher than the numbers above, the assets are more correlated during equity market negative returns: