Anti-Depressants - Friday, page-18

Hi Kacy,

Should one expect the Australian market and the American market to have a high correlation?

They are two quite different markets.

Australia is heavily tilted to Financials (nearly 50%) and Materials about 14%. Information Technology is a miniscule 0.8%.

In America, Information Technology is the largest sector 20.7% if the SP500. Financials make up 16.5%. Materials make up just 2.8%.

I can see no reason for thinking that there would be a high correlation between these two markets.

Over the past 30 days (Macro Axis), the correlation between the XJO and the SP500 has actually been slightly negative -0.14.

I keep a measure of the correlation for IOO (the ETF for American stocks in Oz Dollars on the ASX). Its very long term correlation is 0.026, i.e., virtually zilch.

The only reason to watch the American market is to see major turning points. These often have a big effect on our market.

But expecting a correlation in trends on a short term basis is likely to be an exercise in futility.

RB