This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Indecent Exposure [to Commodities]

Inverse Correlation

An inverse correlation is defined as: "A contrary relationship between two variables such that they move in opposite directions." Meaning, if items A and B are inversely correlated, when A moves up, B moves down by roughly the same percentage. And vice versa.

Below is a chart of the U.S. dollar over the past five years, as tracked by the PowerShares DB U.S. Dollar Index Bullish (UUP):

UUP Chart

UUP data by YCharts

While many in the financial media have been calling for the U.S. dollar's precipitous decline to worthlessness thanks to the Federal Reserve's quantitative easing, clearly that has not been the case. But we have seen a slow and steady weakening which is evident in the chart above. The simple argument only makes sense, then, for dollar-denominated commodities to cost more (in dollar terms) in the world of a weakening dollar.

What's inverse correlation got to do with me?

Below is a chart reflecting the dollar (UUP) versus the commodity index (DBC) over the past five years. 

UUP Chart

UUP data by YCharts

As I mentioned here a few weeks ago, fears about slowing global growth may well be overstated.

From the supply/demand side of the argument, this fear is a big part of the reason DBC is inexpensive right now. Take advantage of this and get a favorable entry point to an asset class that belongs in your portfolio anyway.

At the time of publication, the author was long DBC.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
UUP $25.52 0.45%
DBC $15.93 -0.50%
AAPL $122.06 -0.76%
FB $94.82 -2.20%
GOOG $634.30 0.38%

Markets

Chart of I:DJI
DOW 17,734.36 -17.03 -0.10%
S&P 500 2,106.84 -1.73 -0.08%
NASDAQ 5,126.9110 +15.1780 0.30%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs