Fig 8. Annual relative change in covariance for the period 1985–2010.

Top panel is the average covariance between price returns of the underlying components of the S&P 500 index, from 1985 to 2010. Bottom panel is the annual change of the average covariance as a fraction of its standard deviation computed over the previous year. Four year-long windows (shading) follow two standard deviation increases in the average covariance greater than twice the standard deviation from one year earlier, after periods of decline. One day crashes are as in Fig 3 (vertical red lines). This indicator yields 4 true positives and 1 false positive.