$INDEX – Rolling Correlations
Out of curiosity I’ve compared the $Index against several markets to see current and past correlations between them.
2 things I notice about these correlations:
– How cyclical they appear – so there do seem to be cycles present between which markets correlate
– How the Euro (despite accounting for 60% of $Index weightings) still oscillates between being correlated, uncorrelated, inverted and back again.
How can this be of any use?
– Take a look at the 60 day correlation between Brent / $index
– If these cycles are to be of any use, we could assume the relationship will return to the ‘inverted’ area, suggesting price gains in oil and losses in dollar (depending on the current trend of both of course)
The next 3 pics display rolling correlations of $Index against FX, Indices, Gold and Oil. Over time I want to see if it helps time ‘risk on’ and ‘risk off’ periods. But as someone who trades both FX and $Index, it can be handy to know when to go all in on $$$ or look elsewhere across other markets.
1 = Perfectly correlated
0.8 = Strongly Correlates
0 = No correlation / relationship
-0.8 = Strongly Inverted Correlation
-1 = perfectly inverted correlation