That relationship does not tell you anything nor has it any predictive power. Did you account for lagging your futures data when you ran your correlations? Because you don't look to answer how current spot/near month oil correlates with current stock index prices. You made the claim that the shape of the futures curve correlates with future stocks price returns. Hence you need to lead/lag your data in a meaningful way before computing correlation coefficients.
No More CL Contango
- Thread starter bone
- Start date
TFW you have no idea who you're talking to.
Have you heard about the market beeing forward looking? Not 100% accurate, but generally forward looking. In SPX as well as in CL
Nice takedown. Care to explain your rational or is this website just to express feelings and emotions? I did not know that former floor traders hold a monopoly on analytics and math. Quite the opposite..
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Of course but that fact does not supply any logical relationship between the oil price curve and future stock price returns. Of course do extreme anomalies in one asset class correlate positively with the probability of dislocations in other asset classes in times of stress in markets. But that does not have any bearing on long term correlations across different market cycles. At least my research did not point to such...out of curiosity, what work have you done in this area and what conclusions did you draw?
I think the idea here is that bone has been observing this phenomena for quite a long while, and may have an insight on future correlated movement.
For example, when I started in this trading space some 6 years ago, CL futures was what I focused on. I did not pay much attention to how it correlated with equities, as it seemed to be it's own animal, based on simple supply and demand as the economy was humming along. But then I noticed more and more talk over the ensuing years about how CL seemed to start moving in a sort of lock-step with equities, specifically the S&P. And it finally came to a head in the Q4 2018 downdraft. CL fell very painfully right along with the equities, and started rising with it too.
I suppose now, during this time, the idea is simply that as the economy suffers, the demand for oil suffers as well. When I started, the economy was not suffering. CL did it's own thing.
But these days, CL is inextricably linked with the economy in that everything is shutdown, so no matter how much supply, with no normal level of demand the price cannot rise.
As we can see, the slow re-opening of the economy combined with reduction of crude outputs and increased air travel and increased desire for car travel etc etc is having a positive impact on stocks, which is also having the same positive effect on crude prices.
@bone is my goto guy on energy-related questions, not because he is a guru on the upstream/downstream mechanics of how the energy complex works, but because he has observed the interplay between energy and other related products for many years. You don't need to know how a cow is made to make a good cheeseburger?
Something like that.
Well, pretty much all asset classes correlate strongly during high volatility regimes, that is a given. Close to zero dispersion. Which can be observed in the pricing of multi assets basket options. That has nothing to do with how the futures curve has predictive power or not for future equity returns. If this held true the entire street would look at the oil futures curve and position itself accordingly, and as a result arbing away such relationship. That this is not the case should tell you that the correlation dynamics are much less predictable as claimed earlier. It's almost as if one looks at the vix futures curve and states that equities most likely go in a certain direction as function of the shape of the futures curve. That simply does not hold true. Just wanted to add an alternative take on this topic.
Edit: this is an anonymous board. It's pretty hard to discern which user brings to the table insights and who does not. I have not made any claims about myself but I would reckon that it's probably impossible for some to judge someone's insights from 10 or 15 posts.
Edit: this is an anonymous board. It's pretty hard to discern which user brings to the table insights and who does not. I have not made any claims about myself but I would reckon that it's probably impossible for some to judge someone's insights from 10 or 15 posts.
I think the idea here is that bone has been observing this phenomena for quite a long while, and may have an insight on future correlated movement.
For example, when I started in this trading space some 6 years ago, CL futures was what I focused on. I did not pay much attention to how it correlated with equities, as it seemed to be it's own animal, based on simple supply and demand as the economy was humming along. But then I noticed more and more talk over the ensuing years about how CL seemed to start moving in a sort of lock-step with equities, specifically the S&P. And it finally came to a head in the Q4 2018 downdraft. CL fell very painfully right along with the equities, and started rising with it too.
I suppose now, during this time, the idea is simply that as the economy suffers, the demand for oil suffers as well. When I started, the economy was not suffering. CL did it's own thing.
But these days, CL is inextricably linked with the economy in that everything is shutdown, so no matter how much supply, with no normal level of demand the price cannot rise.
As we can see, the slow re-opening of the economy combined with reduction of crude outputs and increased air travel and increased desire for car travel etc etc is having a positive impact on stocks, which is also having the same positive effect on crude prices.
@bone is my goto guy on energy-related questions, not because he is a guru on the upstream/downstream mechanics of how the energy complex works, but because he has observed the interplay between energy and other related products for many years. You don't need to know how a cow is made to make a good cheeseburger?
Something like that.
Your insights serve you well. Bury those feelings deep down, and revisit them later when you have more ET midichlorian in your blood.
