dtblount

Just How Correlated Are Oil and Equities?

...very interesting article and some great comments!

Arsuron brings up a great point. While the S&P500 does constitute an appropriate benchmark, the names are changed periodically to specifically reduce volatility and attempting to mirror the current state of the US economy in terms of aggregate business performance.

Also, while no experiment or analysis of correlation can be perfect, I would argue that a single correlation figure is irrelevant when examining the price of oil and its affect on the broad US economy. about 3/4 of oil's demand in the US comes from gasoline, which - at the retail level - does not move as freely as oil. Rising oil prices lead to rising gasoline prices at a slightly-lagging pace; however, falling oil leads to falling gasoline prices at a much slower pace. I don't have any specific data for this, but it would be very interesting to see.

Logically, more money spent on oil means higher expenses for most US businesses and less disposable income for US consumers. Both of these things will absolutely lead to a worse economy, ceteris paribus.


Cheers