Stock Correlations Soar To 97.2%: Here's Why

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Tue, 09/13/2011 - 14:06 | 1664464 Godisanhftbot
Godisanhftbot's picture

 Its nauseating. Why bother trading stocks at all.

Tue, 09/13/2011 - 14:15 | 1664491 Dr. Richard Head
Dr. Richard Head's picture

It was so nauseating that in 2008 I encountered dry heaves.  Consequently I have calmed my stomach by not having one red cent in stocks at all.  I will leave trading to the computers - they have iron guts.

Tue, 09/13/2011 - 15:42 | 1664970 wombats
wombats's picture

No, actually their guts are made from copper, silver and a little bit of gold.

Tue, 09/13/2011 - 14:17 | 1664495 MarketTruth
MarketTruth's picture

Why bother? Because the HFT computers need to steal those pennies and front-run you so as to 'add liquditiy' to 'the market'. C'mon, get with the program and support Goldman Sachs, JP Morgans, etc HFT computers and make as many trades as you can.

/sarc

---------------------

Buy phyiscal gold and silver, then sit back and enjoy the fireworks as countries and US cities implode.

Tue, 09/13/2011 - 14:24 | 1664526 Smiddywesson
Smiddywesson's picture

There's a time to trade stocks, and a time not to trade stocks. 

Ditto for bonds, and commodities.

There's also a time to sit in cash, or to flee to precious metals.  I would say this is one of those times.

Tue, 09/13/2011 - 14:36 | 1664585 mayhem_korner
mayhem_korner's picture

Why bother trading stocks at all.

Improper use of plural.  It is currently "stock"...

Tue, 09/13/2011 - 15:53 | 1665023 Greater Fool
Tue, 09/13/2011 - 14:15 | 1664490 long-shorty
long-shorty's picture

someone forgot to tell AUD/JPY that everything is better now.

Tue, 09/13/2011 - 14:17 | 1664498 Cdad
Cdad's picture

You can also see the jackles moving in on AUD/USD.

Tue, 09/13/2011 - 14:53 | 1664685 long-shorty
long-shorty's picture

I hope so. I, for one, am tired of hearing how awesome China is.

Tue, 09/13/2011 - 15:01 | 1664729 Cdad
Cdad's picture

I assure you...you are not alone in your opinion of China...

Tue, 09/13/2011 - 15:06 | 1664759 long-shorty
long-shorty's picture

CLF puts today = more fiat tomorrow.

Tue, 09/13/2011 - 14:17 | 1664493 SheepDog-One
SheepDog-One's picture

Markets now completely taken over by robots, so why shouldnt there be any surprise about near total correlation moves in all things, no matter how much they may not be related to each other at all?

Tue, 09/13/2011 - 14:20 | 1664506 Cdad
Cdad's picture

Yep...assless jeans, coal, diamonds, oil, burritos, gold...perfect harmony there.  Brilliant capital allocation.

I'm sure "investors" are lining up to buy crap equities from a just short of jailed syndicate of criminal bankers...any minute now...a fevered rush of retail buyers...holding my breath.

 

Tue, 09/13/2011 - 14:22 | 1664510 SheepDog-One
SheepDog-One's picture

Of course now we get the 'BIG UPS' to deep in the green across all markets for no plausible reason at all....GEE a funny thing happened on the way to the sure-thing baked in QE3 delivery.

Tue, 09/13/2011 - 15:44 | 1664983 long-shorty
long-shorty's picture

where can I buy my wife a pair of these assless jeans? that sounds like pretty excellent allocation of capital if you ask me.

Tue, 09/13/2011 - 14:18 | 1664494 monopoly
monopoly's picture

Good post. That is partly why I never trade this market and have not shorted either.

Tue, 09/13/2011 - 14:18 | 1664501 SheepDog-One
SheepDog-One's picture

The elite bankster overlord lunatics can play with each other, Im watching this fiasco from the nosebleed seats.

Tue, 09/13/2011 - 14:17 | 1664497 Belarus
Belarus's picture

All why you have to throw fundamental analysis away. With a 1;1 correlation moving money around doens't matter at the margins" it has to be either long, short/straddle, call, put on indices if you're going play the suckers game. Nothing else matters....

Except for looking at the1970s just perhaps: where it was Silver, Gold, Oil, and PM stocks, in just that order, that gave one true alpha. Everything else was just noise; ditto--this centrally planned nightmare.

Tue, 09/13/2011 - 14:19 | 1664502 xtop23
xtop23's picture

Why is the relationship between gold / silver and stocks unusual ? I always thought it made perfect sense for risk-on risk-off to trigger flights to or from safe havens or ETF's / financials / equities etc ?

This is not the norm ?

Tue, 09/13/2011 - 14:24 | 1664527 SheepDog-One
SheepDog-One's picture

Huh.....well anyway, Ive been risk on for a while stocking ammo and food.

Tue, 09/13/2011 - 14:24 | 1664524 rgd
rgd's picture

Does anyone know if Eric Janzsen (iTullip) restructed his portfolio.  He was long gold and Treasuries, but hinted on getting out of one or both and putting it elsewhere.  Thanks

Tue, 09/13/2011 - 14:26 | 1664535 SheepDog-One
SheepDog-One's picture

I was just doing lines of coke with Eric off a hookers ass last nite, he says treasuries are for dorks.

Tue, 09/13/2011 - 14:27 | 1664538 adr
adr's picture

They markets have been completely taken over by algos today. Look at the action in the charts, the moves are totally synthetic. How in the hell is the Nasdaq trading that much higher than the DOW?

Pull up a chart that shows two minute price action and run your mouse across it. Nearly every move up has been followed by a minuscule decline and then a further move up. Same with the moves down in inverse. The S&P oscillated between 1171 and 1172 for fifteen straight minutes jumping up and down a point on every tick! Look at that 20 point move in the morning, have you ever seen a jump with jagged edges like that?

Perhaps all that wacky behavior we saw in individual stocks over the past few months really were trial runs to turn the entire market over to a couple computers.

Tue, 09/13/2011 - 14:29 | 1664548 SheepDog-One
SheepDog-One's picture

Ramping stocks into hurricane force headwinds...to show need for QE3 delivery next week? 

Something is about to blow up big time here.

Tue, 09/13/2011 - 14:58 | 1664713 adr
adr's picture

I agree but what? Frickin SodaStream is up about 20% since the start of September defying all logic.

I guess there isn't a single trader out there that has been in a store noticing that nobody is actually buying the thing and the machines are on clearance everywhere. They were able to show great growth because so many mass retailers bought a ton of the machines expecting to sell them. Now they are all sitting on the inventory looking to unload at firesale prices. I expect one hell of a black friday special on SodaStream product.

When the market is taken over by computers that drive the market up 1% on a single rumor headline, how can it be stopped. We should have sold off to S&P 900 by now but the market keeps going. I think they are just letting it go because they can't shut the computers down. It is the only thing keeping the lights on at this point.

With correlation running at 97% that means there is only 3% left that actually pump blood through their veins. Imagine the catastrophic loos in volume if the computers are unplugged.

Tue, 09/13/2011 - 18:13 | 1665468 learning2
learning2's picture

I was thinking today how the Dow, NASDAQ and S&P 500 sure were looking like the same patterns that Gold and Silver were displaying for the past year or so, but not so recently since China opened up. Thought it was weird...just sayin.

Tue, 09/13/2011 - 14:29 | 1664549 Hedgetard55
Hedgetard55's picture

How is it possible to have such high correlations? What is the mechanism?

Tue, 09/13/2011 - 14:30 | 1664564 SheepDog-One
SheepDog-One's picture

"cntrl-alt-print' key.

Tue, 09/13/2011 - 14:37 | 1664598 Deadpool
Deadpool's picture

step 1: inject money into system

step 2: buy shit

result; prices of everything go up together eventually like George Michael fans in a hot tub.

Tue, 09/13/2011 - 15:06 | 1664760 Greater Fool
Greater Fool's picture

Put simply, a bunch of stat arb machines are sitting out there with single-name betas to various things--the index, one another, etc.--and looking for opportunities to pairs trade or do more exotic things so they can profit if a breakdown in betas is only temporary.

Wonderfully, the first to trade such a combination pushes it ever so slightly back into line. The second pushes it a bit more in the same direction, and so on. As long as more or less everyone is more or less in agreement as to what the betas ought to be, that's what the betas are. To build new models or test their existing ones, they examine recent data and discover that, lo, the betas are pretty darn stable and therefore the risks of such strategies look fairly low.

In other words, you have a world in which non-news-related price shocks in an individual name (that's "specific risk"; you exclude it from your backtesting and design the strategy to avoid names at times when they are moving on news rather than established patterns) are propagated through the whole fabric of equities almost instantaneously.

On one hand, this should have the effect of mitigating liquidity problems in individual names (as long as they are an accident of timing rather than a consequence of something real), by in essence transferring liquidity from places where it is in excess to places where it is lacking. In that sense, it's a rather beautiful arrangement. On the other hand, any system that hideously interconnected is pretty much bound to go horribly haywire someday. (Hello, flash crash....)

Tue, 09/13/2011 - 14:29 | 1664550 Denver768
Denver768's picture

Once the machines have squeezed the carbon-based traders from the market, the machines will dictate where the market goes and when...  HFT firms will reap whatever profits they want.. and momentum rats will chase the crumbs.

Who controls the past controls the future: who controls the present controls the past.   -- George Orwell, 1984

Tue, 09/13/2011 - 16:17 | 1665004 MichaelG
MichaelG's picture

Who controls the milliseconds controls the hours and days?

Tue, 09/13/2011 - 14:29 | 1664555 Smiddywesson
Smiddywesson's picture

Of course everything is correlated.  When Bernanke shocks the patient with the paddles, everything jumps, and then goes back to being dead.

Tue, 09/13/2011 - 16:15 | 1665116 mick_richfield
mick_richfield's picture

St. Vitus' Dance, illuminated by St. Elmo's Fire.

Sounds like my kind of party.

Tue, 09/13/2011 - 14:30 | 1664565 Deadpool
Deadpool's picture

Correlate, good times! come on! It's a correlation! there's a party goin' on right here, a correlation to last thru out the year. Cor-a-late, good times! come on!

Tue, 09/13/2011 - 14:34 | 1664579 SheepDog-One
SheepDog-One's picture

Last hurrah rampjob before next weeks Bernank QE3 faceplant.

Tue, 09/13/2011 - 14:41 | 1664619 CvlDobd
CvlDobd's picture

Could it be that the machines agree with most here and are doing all they can to protect us from QE3 madness?

See law 1 of robotics.

A robot may not injure a human being or, through inaction, allow a human being to come to harm.

See they are saving us from FED harm!

Tue, 09/13/2011 - 15:52 | 1665018 MichaelG
MichaelG's picture

Fairly sure all these robots are non-Asimov-compliant. Timmy Geithner certainly isn't.

Tue, 09/13/2011 - 14:34 | 1664580 alien-IQ
alien-IQ's picture

here's another perfect correlation:

/ES up 1.00%
$DXY down .97%

who woulda thunk it?

Tue, 09/13/2011 - 14:41 | 1664615 SheepDog-One
SheepDog-One's picture

And there goes Bernank's last cushion to QE on, rising dollar. No more.

Tue, 09/13/2011 - 14:43 | 1664638 Racer
Racer's picture

The world's 'markets' just follow the apple

Tue, 09/13/2011 - 14:44 | 1664641 adr
adr's picture

Look at the chart for oil today. Where the fuck is the SEC???????

Seriously, something really F'd up is going on. Specifically from about 2:00-2:15. Something stupid crazy went on during that 15 minutes.

Tue, 09/13/2011 - 14:50 | 1664667 Downtoolong
Downtoolong's picture

I swear, if someone did finally manage to invent perpetual motion today they would have a hard time finding backers to develop it for more than a week. If Greece defaults, the investors would probably bail on the idea and buy gold.  

Tue, 09/13/2011 - 14:51 | 1664673 Srgato
Srgato's picture

Can anyone shed light on the strengthening of the dollar?  Are there intelligent theories on how long it will continue?  Assuming Europe's going bad, what effect does a good (strong) PRC (China) have on the dollar?  Doesn't the strengthening dollar make Bernacke's intervention less likely?  What other sites are focusing on this issue? 

zerohedge is the best site for financial information which I have found to date--I'm keeping current on about a dozen and have looked, one time or another, at a hundred.  Below is an Emirati site that had a sensible post on gold today.  It's the first site from that area that I thought might be useful to consult (use the "business" tab).  Here's a link:

http://www.albawaba.com/will-gold-continue-its-rally-or-enough-392078

Tue, 09/13/2011 - 14:51 | 1664675 JW n FL
JW n FL's picture

 

 

Markets are trying to discount the survival rate of another cross-border financial pandemic. That is why they move in lock step.

  • Gold and silver traders have gotten too used to the negative correlation trade with stocks.
  • And thennnn??? No and Then!

    Tue, 09/13/2011 - 14:55 | 1664689 Waterfallsparkles
    Waterfallsparkles's picture

    Last Monday and this Monday it is so evident that the Fed is in the Market.  Especially, yesterdays huge pump at 2:00.

    Bernanke so loves the short squeezes.

    Aapl from $272.  (yesterday low) straight up to $386. todays high.

    Sina from $101. (yesterdays low) straight up to $114. todays high.

    All high Beta stocks.

    Yep, the Fed at work.

    Tue, 09/13/2011 - 17:51 | 1665408 Hulk
    Hulk's picture

    $372 on the aapl low , not $272...

    Do NOT follow this link or you will be banned from the site!