The Herd Instinct Takes Over-Component Stocks' Correlation to S&P 500...

Quote from nazzdack:

Suss, it's the "Summer of 2008" all over again! :eek: :D
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Well, I am not expecting anymore "6sigma" events...I am calling it now "12sigma"...( spelled : one, two sigma; twelve sounds so disastrous ) :D :D :D

By the way, I received today an invitation to celebrate the opening of their new data processing centre :

http://www.interxion.com/

And this company is also working very hard to offer ultra low latency services :

http://www.eunetworks.com/

So basically, they are working very hard to fulfil my "12sigma" dreams...:p
 
ASU


Good article, although a little overwhelming to me as I am not sure how I could trade it….


What I have been able to use


DOW is comprised of companies doing a lot of international business

DOW has decoupled from US economy – where historically it’s been more or less the barometer

DOW is closer to representing a one world economy than ever before too – unfortunately sans the US - imo


Asia & Europe play a more interregnal part of my daily where’s waldo before the mkt opens analysis than ever before

(always a good idea to have a map before going into battle - imo)




So much for being an isolationists – if one was ever so inclined

See Ya
RN
 
Quote from Redneck:

ASU


Good article, although a little overwhelming to me as I am not sure how I could trade it….
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There is a correlation expectation priced in the options market. You could trade it by buying options on index components and selling options on the index or vice versa, depending on your forecast for actual correlation vs. implied. I thought about doing this about 5 yrs ago and ruled it out as a pain in the ass way to get single digit returns. But if you have a strong view on correlation it may be worth it.
 
Quote from Redneck:

DOW is comprised of companies doing a lot of international business

DOW has decoupled from US economy – where historically it’s been more or less the barometer

DOW is closer to representing a one world economy than ever before too – unfortunately sans the US - imo
More...

Check out

http://www.elitetrader.com/vb/showthread.php?s=&threadid=180761&highlight=revenues

Meanwhile, foreign revenues represent more than 45 % in S&P 500 companies ( at least in the companies that are reporting ). Ergo : earnings expectations are much higher correlated to NON US macro data than ever before.
 
The application of Portfolio theory and all the rest boils down to nothing more than a strategy. If large numbers use it blindly (like they do) it breaks down. It is amazing that these "professional investors" follow academic tenets while having very little understanding of what they are investing in.

Such hacks could not exist in an efficient market, and I am not just referring to the theory but rather an efficient market with regards to end users as well. How many moderately affluent people out there are being charged 1 - 2% for a "portfolio of ETF's" by supposed, "investment professionals?"

The amount of highly paid dead wood the financial sector supports is truly astounding.
 
low volatility??? You must be nuts, when have markets moved 8-10% in a matter of 2-3 weeks other than during absolute turmoil? What are you talking about??? We are bound in a large range but within that range markets and all its components are incredibly volatile.

Quote from brownegg:

This is a major, major element of the current landscape. The current market is a pure factor game. What all these articles don't mention is that correlation is at all time highs in a low-volatility environment.
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Quote from ASusilovic:

Check out

http://www.elitetrader.com/vb/showthread.php?s=&threadid=180761&highlight=revenues

Meanwhile, foreign revenues represent more than 45 % in S&P 500 companies ( at least in the companies that are reporting ). Ergo : earnings expectations are much higher correlated to NON US macro data than ever before.
More...


ASU,


And here’s one for you


I remember when you posted that, intrigued I started poking around a little and connecting some dots – Fast forward I coined my own analysis technique based on what I found…. IA (Influence Analysis)

Which I was in the process of explaining/ laying out in another thread when in came the goof balls… oh well…. (last time I make that mistake)

If we ever meet I owe you one big ass dinner Sir…:)

---------------------------------------------------------------------------------------------------------------------------------------------------

BD,

Truth be known I am options ignorant – I use them for insurance on swing trades, and track some for the influence they may impose on the underling stock I trade – other wise the Greeks remain Greek to me…


Trade Well Gents

RN
 
Quote from asiaprop:

low volatility??? You must be nuts, when have markets moved 8-10% in a matter of 2-3 weeks other than during absolute turmoil? What are you talking about??? We are bound in a large range but within that range markets and all its components are incredibly volatile.
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Yes, low volatility!!!! I'm not nuts, I just happen to be one of the many traders who don't just daytrade stocks and ES!!!!

Even where something like weekly ranges are decent, correlations like this are normally reserved for times like summer '97, '98, '01, etc.
 
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