What about cointegration ? Correlation never stops because it never starts. It's just a linear association between two variables, bounded by limits. It doesn't make any assumption about the root cause or generative process. Therefore there is no meaning when the coefficient changes. No other meaning than ... Their relationship has evolved. Which is to be expected. Correlation isn't causation.
One correlation that started breaking down a couple months ago is the previous leading stocks became dull and not bouncing as much as their index. The AI mania started getting whacked, one at a time, starting with SMCI and ending recently with APP. What this can mean is the big money investors holding a lot of open profits are ringing their cash registers, booking large profits, triggering the avalanche. It can sometimes correlate with the very top of the market!
Market, Instrument and stock correlations can often change with a presidential administration change. And..for political reasons..large players can try to remove a correlation if the change benefits. Bitcoin was first sold as a replacement currency (inverse correlation with USD). Then, under Biden, it became just another Tech Play (correlation with NASDAQ Index). Now..there may be another attempt to change its correlation. Bitcoin is not the only correlation that can change with a presidential change. Watch closely over the next months. USD has already completely changed its behavior. And also, they are screaming about Inflation changes but I see no changes. Inflation is still very very high. And I dont see it drastically falling or rising. However, the correlation of Fed Rate Changes and Treasury Yields seems to have completely lost its 1:1 correlation. And Seems that Fed Rate cuts will continue under the next president...with no correlating falls in mid and long treasury yields
Got a chart showing that, or is that just an opinion? Nothing wrong with having an opinion, as long as if it stated as such.
Good Evening 358, When correlation stops in your trading, this is a good thing. If correlation continues in your trading, you take X times the losses of the different methods/strategies you are trading.
The early days of the "Trump trade" was buy industrials & financials since those did the best after his 2016 victory. That worked for a while but then the skyrocketing USD & 10 year rates clamped down on that. I guess the cryptocurrency, PLTR & TSLA part of the trade continues unabated. I think this time around Trump is trailed by tech titans so my guess is tech will do a lot better this time -- they did pretty good last time as well. In 2016 the Dow far outpaced the NASDAQ but this year it is the reverse. One correlation that has worked recently is the move from value stocks to growth stocks during this higher USD & higher rates move. I think since December 2 the long NQ short YM (or RTY) trade is a huge winner. I own the MAGX & FNGU ETFs and they have even trounced TQQQ so that means everyone is piling on to the large cap tech trade, yet again. One interesting thing about this market cycle which started when rates bottomed in October 2022 is that it is almost entirely CapEx driven by the hyperscalers buying a lot of GPUs from nVidia. The rest of the economy is still in a downtrend except the luxury class going on endless vacations via airlines, cruise ships & hotels. I guess it is a consequence of the rising USD. Since December 2: DIA -3.5% IWM -6.2% QQQ +4.0% MAGS +12.0% [Magnificent 7] FNGS +11.1% [NYSE FANG+ Index] XLF +4% [Financials] XLI -6.6% [Industrials] Looks like Financials & Tech have done the best. The large banks benefit form a normalization of rates so that makes sense. Industrials as a sector did much worse than the DJ30 which I guess speaks to the fact that the DIA is slowly becoming just another momentum Index.