Loading...
Symbols:
Authors:

Interrelation of Asset Classes: A Few Market Themes

by: Brett Steenbarger August 27, 2008 | about stocks: DBC / FXE / SHY / SPY / USO    
Brett Steenbarger

Brett Steenbarger

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

With increasing globalization, every asset class is related to every other one. This makes it useful for understanding how these relationships shift over time. Many times, movements in one asset class will anticipate movements in others. With an understanding of how these different groups are moving--stocks, bonds, interest rates, and commodities--we can appreciate the themes that are driving markets that day.

Since 2007, on days when the euro (FXE) has risen versus the U.S. dollar, the average price change in the S&P 500 Index (SPY) has been -.15% (107 occasions up, 112 down). When the U.S. dollar has risen versus the euro, the average price change in the S&P 500 Index has been .14% (112 up, 83 down).

On days in which the euro has risen versus the U.S. dollar, the average price change for commodities (DBC) has been .42% (137 occasions up, 82 down). When the dollar has risen versus the euro, the average price change in commodities has been -.22% (91 up, 104 down).

When the euro has risen versus the dollar, the average price change for oil (USO) has been .59% (130 occasions up, 89 down). When the dollar has risen versus the euro, the average price change in oil has been -.32% (88 up, 107 down).

When short-term Treasury notes (SHY) have risen in price (yields falling), the average change in SPY has been -.42% (83 up, 136 down). When Treasury notes have fallen in price (yields rising), the average price change in SPY has been .44% (136 up, 59 down). When short-term notes have risen in price, USO has averaged a gain of .24% (123 up, 96 down). When short-term notes have fallen, USO has averaged a gain of .07% (105 up, 90 down).

These are not permanent relationships that serve as the basis for mechanical trading. Rather, they are correlations that reflect broad themes such as recession concerns, inflation worries, and the like. By understanding how asset classes are moving--and moving relative to each other--we can gain insight into the mindsets of institutional money managers.

Related Articles

This article has 4 comments:

  •  
    Aug 26 03:05 AM
    not due to increasing globalization but due to increasing use of leverage all asset classes become interwined due to the need for collateral in the prime broker account.
    Reply
  •  
    Aug 27 03:21 AM
    GLD is run by one of those big banks. How do we know they haven't "swapped" the fund's bullion for paper assets, to squeeze out a little extra bank profits?
    Reply
  •  
    Aug 27 10:08 AM
    rogerk2, you're in the wrong thread. Here are the GLD conspiracy theory articles you're looking for:

    seekingalpha.com/artic...
    seekingalpha.com/artic...
    seekingalpha.com/artic...
    Reply
  •  
    Aug 27 11:59 AM
    thats a good point by bbzz24 that Leveraging and Hedging has mixed the different asset classes..
    Reply
More Comments on SHY »
More by Brett Steenbarger

Investment Resources
Money Management 

Research 

Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Market Outlook 

Asset Allocation with ETFs 

Bonds 

Dollar/Currencies