Friday, February 15, 2019

Relationship between A-B ( stocks or commodities or currencies or index)

Most of the time you will hear and will continue to hear the media telling you the relationship between this product A with product B or stock A with stock B or commodity A with commodity B....

Many different sort of relationship combinations can actually happen. Sometime A will be positively correlated with B ... meaning when A goes up .. B will go up. Sometime they move in tandem on the same ratio... sometime different ratio.

Than you can encounter another scenario where A and B are negatively correlated either at the same or different ratio.

Sometime only either A or B moves up or down while the other remain stationary.

There will never be a perfect correlation and I have come to a point that I trade SOLELY on the chart with trying to tie a correlation be it inter or intra relationship.

However, in the case of highly liquid markets, the relationship or correlation between an instrument product with the derivative (CALL or PUT options) are closely correlated with little room to arbitrage.

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