A presenation on cross market correlations by Tom Hougaard, held at a Saxo Bank seminar at Soho House London, 24 January 2011.

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

3. DAX Index

4. DAX Index vs. FTSE 100 Index

5. DAX Index minus FTSE 100 Index (10min chart – 10 days)

6. DAX Index minus FTSE 100 Index (2H chart – 5 months)

7. DAX Index minus FTSE 100 Index (weekly – 14 years)

8. Euro $ vs. Crude Oil – weekly Chart

9. SP500 Index – weekly chart

10. Dollar Index – weekly chart

11. SPX vs. $ Index – Correlation is on/off

12. Dollar Index long-term

13. SPX long-term

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.

15. Corn

16. AUD – USD

17. Corn (vs. AUD – USD)

18. Cocoa

19. AUD – USD

20. Cocao (vs. AUD – USD)

21. An old favourite: Dow / Gold

22. Dollar Index – 4H chart

23. SP500 – 4H chart

24. SP500 vs. US Dollar Index – 4 hour chart

25. Silver

26. Gold

27. Gold / Silver

28. DAX Hourly

29. EURJPY 60-min

30. DAX - weekly

31. EURJPY - Weekly

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

33. SP500 weekly

34. 10y T-Bond - PRICE

35. Intra-day – 4 indices

36. Intra-day – 4 indices

39. Example: Sterling Yen

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