Beta for Currencies

Discussion in 'Forex' started by joeactuary, Apr 27, 2008.

  1. Anyone know where I can find the Beta (Equity eg. vrs SP500) for an ETF like US DOLLAR SETTLED CURRENCY EURO (XDE).

    I wanted to try calculating it myself, but I couldn't find historical prices for XDE on Yahoo. I'm trying to see what the historical relationship is between the Euro and S&P 500.

    Or is any calculated Beta between XDE and S&P500 meaningless?
  2. I'm not quite sure what you're looking for but do you mean something like this?

  3. Thanks cabletrader. I meant the Euro Index (I wrote ETF by mistake). In the AOL website, it is $XDE.FX.

    I found another symbol that tracks the Euro, FXE, (Currency Shares Euro Trust.) Yahoo does have historical information on this so I ran the numbers through and calculated Beta and got -.01! SO there seems to be no market relationship between S&P 500 and the Euro.

    Interestingly I calculated the Beta for the Yen using FXY and got a Beta of -.56. However Yahoo only has historical data back to Feb 2007 instead of 2005 for XDE.
  4. This is an interesting article I came across, I copied it but lost the link (and the chart). I know it applies to Yen and CHF but I wonder if the same applied to Eur when interest rates were low comapred with US rates and Eur was used as a carry funding currency (if it ever was, I can't remember!).

    I'll leave it with you...


    JPY - Equity correlation is not sacred.
    Posted by Paul Spirgel on Fri, 04/25/2008 - 3:28pm in Carry trades Equities Forex Pairs Trading USDJPY
    Excerpt of research paper regarding the recent relationship between the Yen and Equity Markets. Courtesy of Bilal Hafeez, DB Capital Markets - London

    In uncertain times, it is natural to defer to recent correlations to understand what is driving currencies. One such correlation is that between the JPY and equity markets. Indeed, since equity markets started their recovery in March, the yen has weakened, thus reversing some of the gains made on earlier equity market weakness. Though tempting to extrapolate this relationship further out, three points are worth noting. First, the correlation between the yen and (say) US equity markets goes through cycles. In the first half of the 1990s the correlation was close to zero, while recently it has reached all-time highs (see first chart) - over the coming months the risks of a decline in the correlation are therefore not insignificant. Second, the yen-equity correlation may not be specific to the yen, the Swiss franc also has recently had an extremely high correlation with equities . This suggests that the relationship may be due to the Swiss franc and yen typically being the lowest yielding currencies in the G10 world, rather than any specific country dynamics. Finally, the correlation appears to rise sharply when market risk increases. For example, when equity volatility or credit spreads rise, the correlation tends to rise .

    The main implication of these points is that if risk appetite was to improve, the relationship between the yen (and Swiss franc) and stock markets would weaken. Relying on stock market trends alone to determine currency direction would then likely prove to be less fruitful than before. So if the current recovery in broader risk appetite was to continue, then stronger stock market may not be enough on its own to sustain further yen (or swiss) weakness.

  5. If I want to do spread trading between yen or chf futures and the indices, where would be a good website/resource to find such correlation analysis/figures?
  6. Thanks cabletrader.

    very interesting article,
  7. You're welcome, it's just a shame I can't find the whole research paper.