Market Correlation - What is It?

Quote from eurusdzn:

Ray Dalio has a few very helpful things to say about correllation in
the new Market Wizzard hedge fund book.
I got some very good advice recently from RiskAdict to drop
the correlation bias if you want to trade of the 1 hour or 4 hour chart. " Trade what you see".

But, IMO(actually Dalio) macro drivers constantly change correlations on a short time frame.
I thought recently SP500 would have to follow Euro down after Italy election. WRONG.
So we seem to have new temporary correllations. Gold is
more risk off. Oil hasnt been allowed to go over 100 and is correlating well with USD. USD is
goldilocks relative to Euro and Yen. Bonds dont believe this stock rally , try to rally a
bit (swing high) and sell hard in continued risk on rally. 4 bill/day , 85/month into stocks.
Makes sense to temporarly buy USD and buy stocks.
I do not think I know what will happen next or when.
Now I always try to end what may come accross as "chicken soup"
advice that I am a working stiff stuggling amateur trader.
More...
no, but it can give you a foundation to work on

when you see the dollar going up, it may mean something to you even if you are not trading currencies

or you see crude dropping, it may mean something to you if you are a gold trader

you start putting these correlations together and look for places where they get out of whack

some trade for a reversion to the mean

others trade for the breakout hoping to catch many unaware
 
eurusdzn,

I would have to agree with oldtime. The movement of the USD can create opportunities if you look for them. If the USD is going up then you can look at crude to see if it's moving down. I don't think I'd be buying both the USD and stocks at the same time as they typically have an inverse relationship with one another. This past week that's not been the case but sooner or later saner minds will prevail. Right now Wall Street is having a field day ignoring fundamentals but that will change at the first sign that something's wrong.
 
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