commodities = stocks?

General discussions about futures.
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techtrade89
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commodities = stocks?

Post by techtrade89 » Wed Aug 11, 2010 12:00 am

Here's the story on Bloomberg.com:

http://www.bloomberg.com/news/2010-08-1 ... lysis.html

The website doesn't have the pic, I think, but I've seen it on the Bloomberg terminal. Basically after economic collapse started, the commodity index tracks movements in the S&P 500 remarkably closely.

Supposed to be independent, no?

Scary weird stuff . . .

sluggo
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Post by sluggo » Wed Aug 11, 2010 12:54 pm

It's not easy to find historical data for the GSCI cash index, so I just used the prices of the nearest futures contract as a proxy.

I multiplied the GSCI by 1.963 so both series can appear on the same scale.

(1.963 is the ratio of the geometric mean returns of the two series)

EDIT - uploaded new revision of spreadsheet, which calculates daily returns and displays them on a scatter plot
Attachments
sp_gsci_v2.xls
The raw data (spreadsheet) - revised to include daily returns
(154.5 KiB) Downloaded 170 times
sp_gsci.png
Comparison plot
sp_gsci.png (31.54 KiB) Viewed 2605 times
Last edited by sluggo on Fri Aug 13, 2010 8:29 am, edited 1 time in total.

techtrade89
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Post by techtrade89 » Wed Aug 11, 2010 10:35 pm

thanks - that's the pic.

But what does it mean?

I'm not sure.

With a touch of fundamentals, here's a guess: Commodities trade based on supply and demand - ultimately. Psychology, other traders, systems, over the long enough haul it all comes out in the wash. But . . . this assumes a functional economic system underlying it all so that the commodities have value within that system. Presumably the economic system is a given nearly all the time, so it doesn't impact prices. However if you start to worry about the economy itself in a truly fundamental way, then the values of the commodities take on a new variable in the form of whether there will be a robust enough underlying society to make use of (and hence give value to) commodities.

In other words, commodities tracking the S&P like this is scary --- no? Maybe it's why trend following is having a tough time now, until things settle down and decouple, we are living during very "interesting" times . . . ?

sluggo
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Post by sluggo » Fri Aug 13, 2010 8:26 am

One tracks the other "remarkably closely"? I edited the spreadsheet above to calculate daily returns, then plotted them on a scatter diagram. The correlation doesn't look "remarkable" to me.
Attachments
scatter2.png
How correlated are the daily returns?
scatter2.png (35.16 KiB) Viewed 2529 times

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