Currency Correlations with the S&P 500 Revisited

The start of the earnings season in the US provides an opportunity to review the currency correlations with the S&P 500. We conduct our analysis on the percentage change of the currencies and percentage change in the S&P 500. What we find then is the correlation of the returns, which is more important to investors then if the levels are correlated. 

We look at a 30-day correlation to see the near-term trend and we look at the 60-day correlation to the slightly longer term. The general take away is that despite a number of other drivers and influences, the correlation between most of the currencies we looked at and the S&P 500 has increased in the recent period.

Euro: The 30-day correlation is near 0.59, which is the upper end of where it has been since late Jan. The 60-day correlation is near 0.53, with is near its highest reading since early March. Recall the 60-day correlation posted its record high late last year a little more than 0.85. Although there have been periods in the past when the euro was inversely correlated with the S&P 500, but this has not been the case since 2008. The lowest since then has been about 0.20 early last year.

Australian dollar: The Aussie is among the most correlated currencies with the S&P 500. The 30-day correlation is just below 0.90 and the 60-day correlation is near 0.80. This is the highest it has been Feb/March. It peaked at the end of last year just above 0.92. 

Canadian dollar: The Canadian dollar rivals the Aussie for the strongest correlation with the S&P 500. The 30-day correlation is near 0.90 and the 60-day is a little above 0.86. This is near its best level since Jan.

Sterling: Sterling's correlation with the S&P 500 has tightened to 0.59 from near 0.40 at the end of Q1. Although this is not as high as the Aussie or Canadian dollar, it is quite strong for sterling. Excluding a short period late last year and at the start of this year, sterling's correlation with the S&P 500 has not been higher than it is now. The 30-day correlation is near 0.68, suggesting that sterling's 60-day correlation may tighten further. 

Japanese yen: The yen (not the dollar against the yen, but the yen against the dollar) is (60-day) inversely correlated with the S&P 500 as has generally been the case since H2 07. There was about a month in late 2010 and Aug '11-March'12 that are exceptions to this generalization. The 60-day correlation stands near -0.28 and the 30-day correlation is near -0.22.

Mexican Peso: The 60-day correlation with the S&P 500 is just above 0.68, which is near the middle of the two-year range of 0.54-0.91. The 30-day correlation is a little higher, just below 0.72. It has rarely been above 0.80.