To: elmatador who wrote (372 ) 5/26/2017 3:05:16 PM From: John Pitera Read Replies (2) | Respond to Oil And The S&P 500correlation between oil and the S&P 500 is unstable. doing does not generate much insight now into what S&P 500 will do. The fluctuation of oil prices is often cited as an important factor driving equities. Our work shows that this is not always the case and that the correlation between the price of oil and the S&P 500 continues to ease. We looked at the statistical relationship in two different ways. We ran the correlation simply on the direction of oil and the direction of the S&P 500. Then, we conducted the correlation on the percent change of each time series. The first Great Graphic (created on Bloomberg) here shows the rolling 60-day correlation of the level of the S&P and the level of oil since the beginning of last year. In early 2016, the correlation was almost perfect good part of the second half of the year negatively correlated February reached almost 0.8 inverse territory. It is now -0.36. The second chart here shows the correlation based on the percentage change of each time series. Ultimately, investors are interested in the correlation of returns. In Q1 2016, the correlation reached almost 0.60, fell by 2/3 to 0.20 before the end of Q2 2016. It recovered in Q3 but was unable to surpass the earlier levels. By the time OPEC announced its decision to reduce output to encourage a drawdown of inventories, the correlation was trending lower. It briefly dipped into negative territory in February before it recovered in March but has been trending gently lower over the past two months and now is near 0.18. The takeaway is that based on current correlations, investors in the S&P 500 should not put much weight on the direction of oil. The correlation is not particularly stable, and it is low now change in oil prices will not give one much help in anticipating the S&P 500 index. seekingalpha.com
