Correlation Study - Oct. 10, 2013

NEW YORK ( Trade Station) -- While not especially strong, a positive linear correlation is usually present between the Gold Continuous Futures contract and the Crude Oil Continuous Futures contract, as depicted by the blue histogram in the blog consistently staying in positive territory.

The histogram is showing the coefficient R between the two securities using percentage moves with a rolling period of six months.

Notice that the correlation is currently trending lower and is at a level not seen since January of 2012. The last time the coefficient R was trending lower to current levels was back in the summer of 2012, when the S&P 500 E-mini Continuous Futures contract experienced a period of weakness and increased volatility (see highlighted period in sub-graph 3).

Increased volatility in the equity markets has already been seen recently, but additional volatility for Futures traders could be experienced going forward.

You can read more of this blog here.

Written by Frederic Palmliden, CMT, Senior Quantitative Analyst, TradeStation, TradeStation.