The dispersion trade, a popular options strategy that profits from differences between individual stock volatility and index volatility, posted its worst monthly performance since 2011 in March, according to a report by Bloomberg.

The losses were driven by the escalation of the Iran conflict, which caused investors to hedge at the index level, pushing S&P 500 implied volatility sharply higher and increasing correlations between individual stocks.

JPMorgan’s index data shows a 4.9% loss for the strategy, while bank swaps tied to it fell 2.6%. Quantitative investment strategies (QIS) tracking dispersion were particularly affected, with 40 out of 43 indexes down in March. Active hedge fund managers fared better by selectively managing stock exposure.

While the strategy has delivered strong returns in recent years, the recent spike in stock correlations highlights its vulnerability to geopolitical shocks and broad market stress. Analysts note that entry points have now improved, but investor appetite remains cautious.