Great Graphic: Euro and Yen Correlation with S&P 500

This Great Graphic was created on Bloomberg. The top chart is a graph of the rolling 60-day correlation between the euro and the S&P 500.  The bottom chart does the same for the yen.  As investors, we are most interested in the correlation of returns, so the study is done on the basis of the percent change.

Many observers claim there has been a breakdown of key relationships, which is making for a more difficult investment climate.  While we acknowledge the more difficult conditions, our work shows the the euro's correlation with the S&P 500 has been trending higher since early February and yesterday made new highs going back to last September.

The yen against the dollar (not dollar against the yen) is inversely correlated with the S&P 500 as much as any time over the past twelve months.  The inversion gradually being reduced in the six months ahead of the November election announcement in Japan and has been trending toward great inversion since.   It is too early to know if the the unveiling of the qualitative and quantitative easing by the BOJ (announced April 4), is impacting the relationship.  However, the inversion of the past 30 days is slightly greater than the rolling 60-day correlation that we chart, suggesting no significant impact from Q-squared.