You can't possibly expect any product to do anything consistently as a relation to another product in this business. There are arbitragors out there who take advantage of any fluctuations in the relationship between the DIA and YM to keep it in line. This means that, constantly, the relationship changes and one lags or leads the other depending on many factors. It is the nature of the market to eliminate any consistency.... someone will always close that gap and the consistency disappears. Does that make sense?
It always is near the beginning of a new contract. They will gradually come together as you ease towards expiration. YM is a bet on the future. DJ is the present so to speak.
I think that to some extent over time, one may begin to "lead" the other depending upon liquidity. That is, you can glean some tape reading benefit. I've often seen this with the ES and SPY. On some retracement move, the SPY pops out very quickly and sometimes doesn't retrace much at all. The ES being thick won't see the bid or offer cleared until a bit later. D These timelines, of course, are in scalping terms, so think 'very short periods').
No it doesn't. Are you telling me that the correlation is near perfect, ie. there's no lead? Or you are telling me that sometimes one leads the other and there's no telling when and what will lead?
the value of ym over indu or dia for that matter is based on interest and dividends... the ym / dia spead is based on that.... the arbs trade spy/esu5 vs dow using dia, ymu5 or stocks back and forth....whatever has more edge...if any if a large order skews in one areana the other quickly adjusts... index arb is almost squeezed to death...robots vs humans... sometime the good guys win...
The correlation is on "fair value"... a more or less constantly degrading differnece between the futures and the cash (presuming steady interest rates). Any deviation is very short term noise and unless you're Billy The Kid, you probably can't draw and shoot fast enough to take advantage. Really not worth the effort to pursue.
The cost of carry or basis will close as we get closer to expiration. Fair value is over 28 pts right now. As dividends get paid out and time runs out, fair value should theoretically go to Zero.