ETF Correlations as of the Close of Friday, December 21, 2012

Rolling 60-day correlations of SPY with TLT, FXE, GLD, SLV, USO and DBC, and trends developing since the last report on November 30, 2012. The correlation between stocks and gold has decreased but this is nothing to get excited about.

The vertical mark on the chart below is set at November 30, 2012 and at the top left of each pane are shown the corresponding correlation values for that date. The values as of the close of December 21, 2012 are shown on the right side of each pane. 

ETF_60_20121221

TLT: Anti-correlation with SPY increased slightly from -0.64 to -0.67 due to the recent rise in yields and drop in bond prices.

FXE: The correlation with stocks decreased from +0.59 to +0.53 due to the fist decline of the dollar mainly.

GLD: The correlation with stocks decreased from +0.49 to +0.32. This is nothing to get excited about like it was the case with some blogs. The correlation between stocks and gold has been always very volatile. For example, back in June it was as low as +0.13. Then gold prices rose.  During September of 2011 it was negative. It is very hard to exploit correlation for directional bets or for market forecasts, in general. It is only useful for diversification consideration and even with that one must be very careful as correlations can change at any time.

SLV: Same pattern as in the GLD case above. The correlations decreased from +0.50 to +0.32. Again, this is a volatile correlation. Back in September of 2011 it was at -0.27. So the only explanation I can give for the stunned blogs about this change is that they forgot to look at the historical performance.

USO: The correlation increased slightly from +0.43 to +0.46. 

DBC: Same as in the USO case. The correlation with stocks increased on basis point only from +0.46 to +0.47.

Disclosure: no relevant position at the time of this post and no plans to initiate any positions within the next 72 hours.. 

Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”) 

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