# Stability of correlations and volatility

I had a discussion recently about the stability of volatilities and correlations. If we take for example stocks and bonds (think of DAX and Bund) then I have seen changing volatilities (something like $30\%-15\%$ vola pa. for DAX) in the last years but a consistently strong negative correlation around $-0.5$.

Commercial risk management systems use different half-lives in their weighting schemes reflecting quicker changes in vola and more stability in correlations. This is my feeling for periods like one or two years too.

A consultant told me yesterday that he thinks the other way around and that for him volatility is quite stable (say $30\%$ for stocks) and correlations change a lot.

Although this must depend on the horizon that you observe I strongly disagree and see the stability of correlations higher than the stability of volas.

Which view is more appropriate for a $1-2$ years horizon and what for longer terms?

-