Correlation reasons

[David's faith]

The big indexes have a tendency to move in correlation. But why is that? The common known reasons are:
The major players like AAPL, Alphabet etc are the same
Risk on vs risk off moves
Reaction to the same macro data
Are there more, not so commonly known reasons?

 

[mikeriley]

Scripted program. Just Kidding

 

[schizo]

The big indexes have a tendency to move in correlation. But why is that? The common known reasons are:
The major players like AAPL, Alphabet etc are the same
Risk on vs risk off moves
Reaction to the same macro data
Are there more, not so commonly known reasons?

And the natural conclusion to be drawn from this is why the hell do we need 3 indexes when 1 is enough? After all, they all move more or less identically.

 

[MacBookProHo]

natural conclusion to be drawn from this is why the hell do we need 3 indexes when 1 is enough?

That's a good question, Schizo 2022, there should just be one main index. They all move in tandem anyways, and represent the general, broad, US economy. But with trading, especially day trading, the Devil can be in the details,

If you can figure out the horizon ahead on a micro and macro, dynamic, scale and process and understanding...you can become a millionaire in the market, Imagine that,

 

[David's faith]

Wasn't it @themickey who said markets are designed to go up and down by textbook or something like that? Sometimes I get the same feeling.

 

[schizo]

If you can figure out the horizon ahead on a micro and macro, dynamic, scale and process and understanding...you can become a millionaire in the market, Imagine that,

Dude, why do you need to repeat the same thing every time like a damn parrot? Just shut up and start your own RenTech.

BTW call me Hidden Markov from now on.

 

[tomorton]

For the professionals, risk trumps everything.

Which means that specific behaviours are tailored so as to carry equivalent risk to what every other professional is doing. And so the market moves like a mob. All we have to do is not get in their way.

 

[longandshort]

Asset classes and risk factors are the common ways professional investors categorize securities. Individual securities within an asset class or risk factor tend to have a high correlation, primarily due to the fact that the underlying risk is the same. For example, the risk of investment grade bonds is their credit rating. As credit conditions improve, the spread between IG and treasuries declines, so you can expect all IG bonds to trade higher.

Same thing for stocks. Sure, sectors and industries can have variance in performance, but by and large, a basket of equities to largely trade in the same direction. Risk factors (carry, value, momentum) also can play a role.

On average, these systematic risk factors / asset class explains 50-70% of a stocks return. Only about 10-20% is idiosyncratic.

 

[tomkat22]

Traders are like Vecna's minions/creatures from Stranger Things, ya know,the "Hive Mind"? They're all connected.

 

[blueraincap]

• Asset price correlation: the web
• What drives
• Personality