1. Cross Market Correlations (Intermarket Analysis) By Tom Hougaard Saxo Bank – Soho House 24 th January 2011
2. Some of the correlations going the rounds in the Dow Jones Index are: Manic Monday – Voodoo Wednesday – Freaky Friday Other correlations are more tangible. Silver and Gold for example follow each other exceptionally well. This presentation seeks to highlight some of the most common known correlations between related and unrelated assets and investigate if Cross Market Analysts have an edge over the uninitiated. Introduction
14. Commodities vs. Australian Dollar The AUD USD has a significant correlation to agricultural commodities. Grains are priced in US Dollars. An expensive $ reduces overseas demand for dollar denominated grain supplies. This tends to apply to all commodities, except if there is weather related price fluctuations. The Australian dollar is known as a commodity currency.
32. Correlations are soothing, yet fickle What’s happened to one of the best established correlations: Dow vs. 10-year Treasury notes Bonds UP – Dow Down” Conclusion – so far
40. “ There has to be a reason” why the correlations come and go. For bonds vs. stocks it is most likely QE. However, as a trader my job is not to explain WHY something has happened or is happening, but to swiftly acknowledge it and react accordingly. My conclusion is that correlations, be it in the stock market, currency market or fixed income should be used with GREAT care. Correlations look great after the fact. Don’t forget though that it was LTCM fund that nearly broke down the entire US economy in 1997-1998 by trading correlations!! Conclusion