The relationship between the dollar and the stock market continues to be closely followed by investors and observers. The rub is that one cannot simply look at the dollar, but must look at the dollar relative to another currency or currencies. The euro-dollar exchange rate is the most actively traded currency pair, and we look at that relationship to the S&P 500.
This Great Graphic, compiled on Bloomberg shows the correlation of euro-dollar exchange rate and the S&P 500. Specifically, it looks at shows the correlation of the percent change in the euro-dollar and the percent change in the S&P 500. This is a more rigorous approach and it gets to what investors are most interested in, which is the correlation of returns. We use a 60-day rolling correlation.
On this basis, the correlation turned negative briefly in mid-September for the first time since late 2008. It looks to be a bit of a statistical fluke in the sense that the 60-day correlation quickly popped back to positive, but barely. Today it stands at 0.06. To put this in perspective, the correlation reached a record near 0.85 in late-2011.
The inversion and now low correlation put the nail in the coffin for the risk-on/risk-off matrix that seemed dominate the global capital markets previously. In the late-1990s and through 2003, the euro and S&P 500 were typically inversely correlated.
This Great Graphic, compiled on Bloomberg shows the correlation of euro-dollar exchange rate and the S&P 500. Specifically, it looks at shows the correlation of the percent change in the euro-dollar and the percent change in the S&P 500. This is a more rigorous approach and it gets to what investors are most interested in, which is the correlation of returns. We use a 60-day rolling correlation.
On this basis, the correlation turned negative briefly in mid-September for the first time since late 2008. It looks to be a bit of a statistical fluke in the sense that the 60-day correlation quickly popped back to positive, but barely. Today it stands at 0.06. To put this in perspective, the correlation reached a record near 0.85 in late-2011.
The inversion and now low correlation put the nail in the coffin for the risk-on/risk-off matrix that seemed dominate the global capital markets previously. In the late-1990s and through 2003, the euro and S&P 500 were typically inversely correlated.
Great Graphic: S&P 500 and the Euro
Reviewed by Marc Chandler
on
September 23, 2013
Rating:
Reviewed by Marc Chandler
on
September 23, 2013
Rating:
