Correlation Study - Nov. 14, 2013
The correlation between the Gold Continuous Futures contract and the S&P 500 E-mini Continuous Futures contract tends to shift over time. This year started with a positive correlation reading, but the correlation has become weaker as the year progressed. The trend is clearly down as represented by the red line in sub-graph 2. Click here to see the graph. The blue histogram shows the coefficient R between the two securities using percentage moves with a rolling period of six months. Notice that the correlation is trending lower and is currently bouncing around 0. Until further developments, the uptrend in equities remains in place, while gold remains under pressure. As a result, the coefficient R for the two securities may dip into negative territory in the near term.
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Written by Frederic Palmliden, CMT, Senior Quantitative Analyst, TradeStation.
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