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Asset Class Correlations to the US Dollar


Recently we have been looking at the dollar for trading signals on several other asset classes. That is not particularly distinctive; a number of analysts have been looking at the same inter-market relationships and drawing similar conclusions.

While having a fairly strong conviction in this trading theme, I wanted to have more data to get a better idea of what is happening here. Jeff Miller posted a piece in which he provides us near and longer term correlation data between the US Dollar and the S&P 500, along with some very helpful charts.

Building on his work, I have put together a set of Pearson r data in attempt to show the correlation between the US Dollar and stocks,US Treasury bonds, commodities, and gold. A couple of notes on methodology: I have taken weekly closing values for data points, and used the following ETFs as proxies for the various assets:

Dollar - UUP

Stocks - SPY

Treasuries - IEF

Commodities - DBC

Gold - GLD

To the extent that the EFTs have any tracking error vs. the underlying indexes, there will be some imprecision, but this should be fairly immaterial.

We also look at a number of time periods, trying to capture bull phases, bear phases, and more complete market cycles. For my part, I have drawn some preliminary interpretations based on this study, but rather than commenting here, have opted to present only the quantitative results, and invite the reader to arrive at his/her own conclusions. Comments, as always, are welcome.

Time Periods UUP/SPY
 
UUP/IEF UUP/DBC
 
UUP/GLD
Trailing Three Years
 
-.63
 
.28
 
-.51
 
-.30
 
Since Lehman Collapse
 
-.70
 
.12
 
-.38
 
-.57
 
Since March 2009 Bottom
 
-.58
 
.15
 
-.77
 
-.28
 
2010 Year to Date
 
-.50
 
-.20
 
-.82
 
-.15
 
From Lehman to March 2009 Bottom
 
-.69
 
-.07
 
-.57
 
-.29
 
From March 2009 Bottom to April 2010 Top
 
-.74
 
.58
 
-.75
 
-.62
 



Disclosure: no positions in any of the ETFs mentioned