Oct 28, 2004

An angry bear from left field?

Just ran across someone else's analysis claiming that oil and bonds have a highly correlated relationship. My own analysis posted last week came to the opposite conclusion.

The "angry bear" has chosen to exclude the data from this Spring's massive bond sell off that occurred while oil prices continued trending higher. When searching for relationships like this it is important to have several up and down swings in both data series, otherwise you will find high correlations (or inverse correlations) for all series that are demonstrating trends.

There is something to the idea that oil prices are perceived by the markets as slowing the economy and causing interest rates to drop, but I think it is more a function of people trying to rationalize the low rates in a seemingly inflationary environment. Both trends appear to be breaking off now and I bet within a couple weeks the talk of their relationship will too.

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