In terms of economic performance, which period is characterized by the lowest correlation levels for stocks?

During expansionary periods, the economy experiences growth, leading to increased consumer spending, investment, and overall economic optimism. These favorable conditions can result in a wider dispersion of stock performance across different sectors and companies. As each sector may respond differently to the growth conditions—some potentially outperforming while others might lag—this creates lower correlation levels among stock returns.

In contrast, during recessionary periods, stocks tend to move more closely together due to widespread economic challenges, leading to higher correlation as all companies typically face similar headwinds. Normal periods, when the economy is stable but not necessarily growing or contracting, can also see varied performance across stocks, but may not be as distinct as in expansionary phases. Market correction periods usually see higher correlations as investors react similarly to price declines, selling off stocks across the board.

Thus, the expansionary period is associated with the lowest correlation levels for stocks, as varied economic performance across sectors leads to a divergence in stock returns.