Correlations within and between Markets and Commodities

Abstract

With a growing interaction between markets, when all markets and exchanges are being inuenced by the globalisation, the correlations between markets and com- modity exchanges becomes an interesting topic. How are they related to each other is the question this study tries to answer. The study includes a large number of the largest national stock markets and some of the most important commodities trades world wide. Correlations analyses are conducted among these securities to find out what relationships that exists, sometime it also tries to pose possible reasons to the relationships. Data time series for 33 di_erent national stock markets and 17 commodities are analysed in terms of rate of return and standard deviation. Correlation analyses are conducted for the markets as well for the commodities, also correlations between the markets and the commodities are analysed. The study includes time series data updated both daily and quarterly for analysing both short and long term behaviours and relationships. Some of the interesting results are presented below. During the time analysed, the study suggests that the Moroccan stock market and Gold have been the best per- forming assets in terms of risk adjusted return measured on a quarterly basis. If risk is not considered, the developing markets Brazil, Russia and Turkey have been the most lucrative investments. It can be shown in the study that the western countries are closely connected to each other. Markets for closed off countries such as China and Saudi Arabia show very little correlation to other markets. The American mar- kets inuences the most eastern countries, much more than the other way around. Metals used in alloys important for the industry have higher correlations to each other and towards the markets than other commodities, i.e. other metals, energy sources and soft goods that also are included in the study.