Abstract: During financial crisis, both liquidity risk and market risk increase. This paper analyzed the formation mechanism of their correlation qualitatively. Choosing Shanghai stock index as the research object it measured the dynamic market risk and liquidity risk by use of the timevarying conditional variance. It used the dynamic correlation coefficient (DCC) method to study the variable correlation between them. The results show that the liquidity risk and market risk have some correlation in common, after the burst of financial crises, there is a notable increasing of the correlation.