Friday, June 13, 2008

Correlation of the Major Indexes and ETFs

I did a correlation study of major market indexes and ETFs. Correlation is a wonderful tool to achieve diversification and for hedging.

The results are quite interesting:

346 trading day study (since Feb 22 2007):

DBA and GOLD: 0.97
GLD and FXE: 0.94
TLT and GLD: 0.90
SKF and DBA: 0.90
EWZ and FXA: 0.97
VIX and SKF: 0.76 (best correlation for VIX)

A number close to +1 or -1 indicates good correlation (positive or inverse). If you are looking for hedging, then buy negatively correlated stocks, or go long and short two positively correlated stocks.

For example, the above shows you that you are not diversified if you buy the Aussie dollar and the Brazilian market!

If you buying USO and need to hedge it for example, then your best for 346 days bet was XLF (-0.92).

You can download a full list for 346 days (since Feb 2 2007) and for 100 days (since Jan 21 2008).

Stumble Upon Toolbar

No comments:

Financial TV

Blog Archive

// adding Google analytics