Can you provide an example of this spread vs externality? The first thing that came to my mind when I read this was some variation of interest rate spreads, but you might be thinking of something totally different.
SpreadProfessor Clients - Thanks !
- Thread starter bone
- Start date
Easy example is the US dollar.
I thought you might suggest something more novel. Anyway, here's an article you might like:
http://www.futuresmag.com/2017/01/28/commodity-currency-correlation-myth
Great share, thanks !
Yeah, I agree with the general message in that article as it pertains to currencies vs. commodities correlations. I have always found them to unreliable (sooner or later) in the sense that the correlation eventually disintegrates without warning and essentially destroys your model.
Oil and Gold come to mind as especially egregious examples.
Yes we definitely trade the ICE energy spreads. I've personally traded that exchange since it's inception in the power markets in the 1990's.
If you look at the Brent vs WTI and the GasOil vs Unleaded Gasoline/Heating Oil markets, you will see that while yes they are broadly correlated there are indeed some very distinct differences and opportunities. They are frequently co integrated. For example, it would not be uncommon for us to get, let's say, a sell signal in a specific ICE GasOil spread combination - and the Nymex analog combination would not be a sell (or just might be a buy!).
So yes, ICE does present some very unique energy trading opportunities if you look beyond simply comparing live Brent and WTI price ladders side-by-side.
One hint I can share is that the strong Singapore physical distillate markets are very influential upon the ICE European markets - much more so IMO than the US markets.
