Think You’re Diversified? Crude Oil Has Other Ideas

Unless you’re an investor who wears cowboy boots or dates Russian models – you may think the energy market volatility isn’t all that meaningful to your portfolio. What’s energy got to do with bank stocks, or Amazon, or Solar companies, for instance?  Most of us would assume nothing, but the sharp downturn in global stocks to start the year, followed by the rebound in Oil and Stock prices since the middle of February has some people shaking their heads. It seems we’re all more correlated with the Oil markets than we might think.

Now, economists can argue whether commodity prices consistently moving downward over the past couple of years are because of Oil or because Oil prices are an indicator of bigger problems (like a lack of global demand for goods and services); but it’s not just commodity prices. We’re talking financials as well, with multiple articles making the rounds recently showing how Oil is influencing other markets due to extreme volatile behavior (the CME’s take), FT, Bloomberg, and CNN). For example, did the Fed hold off raising rates because of Oil prices?

We couldn’t help but take a look across a few markets and see just where the correlations stand between a host of markets and crude oil on a rolling 30 day basis. And as you might expect, correlations have been on the rise over the past six months in the 6 markets we looked at.

30 Day Rolling Correlation

 

(Disclaimer: Past performance is not necessarily indicative of future results)
Continuous front month contracts

Turns out the Aussie and Canadian Dollars are essentially bets on Oil these days. The highest crude oil correlation is the Canadian Dollar at 0.69 (highest at 0.72 back in January), largely thanks to Canada’s economy driven by oil prices. Not far behind is the Emini S&P, with a correlation high of .71 in February.  On the flipside, the 10 Year Note prices have the lowest correlation, hovering around -0.60, but that could also be looked at as 10 year rates having a positive 0.60 correlation.

Although no matter how correlated some of our most traded US futures markets get to Oil prices, it looks like we’re still a comfortable distance away from becoming as correlated with Oil as the Russian economy, as can be seen in this chart showing just how close this Russian ETF trades closely to crude oil.

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: The Traders Journal

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  1. […] a coincidence or are these markets showing their true colors or being highly correlated? Last Week, we charted the current rolling 30 day correlation of the S&P 500 has to Crude Oil and not only has the correlation been increasing, 2016 has shown the highest correlation over a two […]

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.