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.
|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