Correlation Between Oil And Stocks Highest Since 1980

Tyler Durden's picture

Submitted by Eric Bush via Gavekal Capital blog,

Stock prices and oil prices have been moving in a more positive correlated fashion recently than at any point since 1980. The 65-day correlation between Brent Crude Oil and MSCI World Index peaked at 52% on 11/13/2015 and has since fallen back a bit to 41%. The 200-day moving average is also at 41% and continues to climb higher. The current correlation of 41% is the highest correlation between stocks and oil prices ever over the history we have for both series.

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Of course there have been certain sectors of the stock market that have been highly correlated to the price of oil for quite a while. And fortunately for investors, there have been sectors that have had a negative correlation. In the first chart below, we show GKCI Developed Market cyclical sectors (Consumer Discretionary, Energy, Financials, Industrials, Information Technology, Materials) relative to the overall stock market (blue line). The red line shows the 5-day moving average for Brent Crude Oil. Over the past five years, these two series have had a 85% correlation. As oil has fallen, cyclical stocks have fallen with it.

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In the second chart, we show GKCI Developed Market growth counter-cyclical sectors (Consumer Staples and Health Care) relative to the overall stock market (blue line). Once again, the red line shows the 5-day moving average for Brent Crude Oil.

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This time we have inverted the right-hand scale so as to better illustrate the relationship. Here, we see growth-counter cyclicals have actually had a NEGATIVE relationship with oil prices. To the tune of a -84% correlation over the past five years. Consequently, growth counter-cyclical stocks have been the best way for investors to buck the drag that oil prices have had on stock prices.

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thesonandheir's picture

Never had algo driven trading in 1980.

LowerSlowerDelaware_LSD's picture

Or the Fed printing like mad, trying to pump up the market, the way they are today.

daveO's picture

1980, not coincidental. Back then, the FED was way too easy for several years, just like now. 

Mark Mywords's picture

You can't compare apples to oranges.

As thesonandheir commented, there weren't algos driving trading back in 1980.

In addition, stocks essentially have gone nowhere since oil has plummeted from the $100+ range. I hardly think a 10% drop in stocks can be compaed with a 70+% drop in oil.

JamaicaJim's picture

CORRELATIONS FOR DUMMIES

Pay attention

Yellen - CUNT

Cankles - CUNT

Fuckbama - CUNT

Jebbie Boy - DOUCHECUNT

Sanders - TAXACUNT

Cruz - KANUCKCUNT

Rubio - CUBACUNT

Class dismissed

mandalou's picture

Trump????

Don't forget about his Apple comment? Everything you need to know about him.

All politicians are cunts.

conraddobler's picture

Interesting question.  Suppose we all get raptured or eliminated, do stocks continue to hit all time highs as long as the power stays on?

mandalou's picture

It will be NYMEX close or 330ramp 24-7.

aVileRat's picture

Well the Rapture can be considered in two ways:

If there are less people then there will be more jobs, which means more labor can enter the workforce, increasing consumption and you should buy consumer discretionary stocks and momentum stocks you hear about on TV.

If there are less people then there will be less consumers which means the Federal reserve will need to do more QE which means you should buy consumer discretionary and high momentum stocks you hear about on TV.

Be sure to tell all the home gamers that eternal salvation and holy comfort is a terrible strategy when compared to the unlimited opportunity of a dead planet. You should be long such great opportunities as irriadiated water and city-state reconstruction plays.