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Baltic Dry Index and S&P 500 Correlation

Posted By On 5/26/2009 07:01:00 PM Under , ,

1. We undertook a research Baltic Dry Index and found that same is in uptrend for past number of days and has gained 43% and if we compare Year to date, the index is now up 228%. In layman languge we can say that Given that Baltic Dry Index is a measure of shipping rates. People world wide track Baltic Dry Index as it is considered as an important indicator for showing an improving global economy. The further corroboration is required to come to a conclusion that how it affects stock market before the same is taken as a gospel truth.

2. An interesting observation during the study of this index has come that since year 1985, the Baltic Dry Index and the S&P 500 have had a positive correlation of 0.5 (1 = perfect correlation, -1 = perfect inverse correlation). However point to note here is that offlate relationship has been turned completely upside down and the S&P 500 and the Baltic Dry Index have been moving in opposite directions for most of 2009.

3. Thus for the year 2009 we can say that S&P 500 and the Baltic Dry Index have had a negative correlation of -0.4, which implies a significant inverse relationship between the two.

4. Another point worth noting is that this year when the Baltic Dry Index declined the most; it was during the initial month of this rally, which was one of the strongest one-month rallies the S&P 500 ever had and thus one has to be very careful as an analyst while using this tool as at times it backfires also like it has done in year 2009.

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