ALL THINGS BIG AND SMALL 2.0

If you are in the US stock market with a short-term trading objective, it is relevant to know the degree of correlation of the US Dollar market and the US Treasuries market with the US stock market as represented by the Dow Jones Industrial Average (DJI). Note:We use DJI as the reference Index instead of the SP500 or the Nasdaq because it’s all about Trump’s tariffs now and tariffs are on Goods, not Services. And on Manufacturing, not IT Technology. Ticker Symbols Output variable-DJI: Dow Jones Industrial Average Input variables DXY: US Dollar Index SHY: iShares 1 to 3 year Treasuries ETF IEF iShares 7 to 10 year Treasuries ETF TLT: iShares >20 years] Treasuries ETF The chart above shows the performance of all the variables. The variables have been standardized/normalized by transforming into Z-Score. So, we need to see the degree of correlation between the input variables and the DJI. We use the simple Pearson’s Coefficient of Correlation R because  our data series only consist...

  Introduction More important than the daily ups and downds of the Dow Jones, the S&P500 and the Nasdaq Composite is the big picture insights that can be gleaned from other asset classes such as the US Treasuries (Bonds) yield, the US Dollar, and the spot price Gold. Refer to the charts above. US Treasuries Yields (data from FRED the Federal Resserve Bank of Saint Louis) Theoretically Bond prices rise in an deflationary economic environment (i.e. their yields in % fall). Bond yields determine interest rates in an economy. So because demand for loans is low in slow economic growth conditions, interest rates charged by lenders e.g. banks fall, which means bond prices rise. This is because when interest rates fall, existing bonds with higher coupon rates (fixed interest payments) become more attractive to investors than newly issued bonds offering lower interest rates. This increased demand for the existing, higher-yielding bonds drives their prices up.  But our chart above s...