SPY Correlation to Currency ETFs at Record Highs

We have recently seen record high correlations of SPY (SPDR S&P500 ETF) to major currency ETFs including FXE (Euro), FXY (Japanese Yen), and FXB (British Pound) – and record low (most negative) correlation of SPY to UUP (US Dollar Index ETF).

The correlations were calculated from daily returns over a 6 month rolling window (126 trading days to be precise). If you are not familiar with the concept of correlation, you can see basic interpretation here.

Correlation of SPY and FXE

The correlation between SPY and FXE (CurrencyShares Euro Trust ETF, tracking EUR/USD exchange rate) reached 0.75, highest since FXE introduction back in December 2005. This probably reflects the fact that it is news from Europe what’s getting the headlines and driving short-term sentiment on global markets in these days (typical scenario: good news from Greece & Eurozone, EUR/USD rises, equities rise vs. bad news, EUR falls, equities fall).

Correlation of daily returns, SPY vs FXE

SPY Correlation to FXB and FXF

The correlation of SPY to FXB (ETF tracking the value of British Pound) and FXF (Swiss Franc) also increased.

Correlation of daily returns, SPY vs FXE, FXB, FXF

Correlation of FXE and FXB, FXF

The correlation between FXE and FXB has been showing a very steady high positive level for years, not leaving the 0.50 to 0.80 range.

Not surprisingly, Swiss Franc is historically even more tightly correlated to the Euro, with FXE-FXF correlation above 0.80 for most of the last several years. However, 2011 was an exception, as Swiss Franc decoupled from the Euro and became a very specific story of its own, with its sharp¬†appreciation in Q2 and July 2011, speculations concerning possible interventions by Swiss National Bank in summer, and the actual act by SNB in early September (on the SNB announced a minimum EUR/CHF rate of 1.20 which it intended to protect through buying foreign currencies “in unlimited quantities”).

Correlation of daily returns, FXE vs FXB, FXF

SPY-FXY Correlation Up from Negative Territory for the First Time

Over years we were used to seeing Japanese Yen (once rare at being a virtually zero interest currency) moving in the opposite direction to equities and risk assets. This has not been the case in the last several months, at least according to correlation statistics of SPY and FXY (Japanese Yen ETF). For the first time since the introduction of FXY ETF in February 2007, the correlation of daily returns of SPY and FXY measured over a 6 month period got above zero, standing at 0.21 on 17 February market close. This of course is still too low to be really called positive correlation, but the traditional negative correlation is gone, at least for a while. The fundamentals and news coming from the Japanese economy have also shown a rather mixed picture recently (debt, trade balance, the 2011 earthquake) and it will be very interesting to watch the Yen and its relationships to other macro markets in the coming months. Maybe there will be a very different Yen.
Correlation of daily returns, SPY vs FXY

Correlations of SPY to FXA and FXC Remain High

Correlations of SPY to FXA (Australian Dollar ETF) and FXC (Canadian Dollar ETF) have been high for several years. AUD and CAD (together with NZD and contrary to the above mentioned JPY) are currencies of commodity exporting countries and they have historically shown tight correlations to commodity prices and risk assets in general. FXA and FXC have also been tightly positively correlated to one another.

Correlation of daily returns, SPY vs FXA, FXC Correlation of daily returns, FXA vs FXC

SPY-UUP Correlation at Record Low

Having seen the charts above, it is no surprise to see the correlation of SPY and UUP at record low levels (-0.77). UUP is an ETF tracking the US Dollar Index, an index measuring the value of US Dollar relative to a basket of six other currencies (EUR with share over 50%, JPY, GBP, CAD, SEK, and CHF).
Correlation of daily returns, SPY vs UUP


Related pages


difference between population variance and sample variancetrading hedge fundvixy prosharesapple stock closing price historymean variance calculatorcalculating population mean from sample meanoption calculator excelgeometric mean return calculatorvix dow jonesformula for calculating wacclist of 13f securitieswhat does macd stand forshorting a call optionhedge fund holdings 13fnorm.disttrue standard deviation formulaputting in excel formulascalculating emajohn c hull solutionsspx spycboe calculatorweighted average inventory calculationvix volatility chartoptions trading bookhow to calculate covariance from varianceoption trading greeksthinkorswim historical datablack schole equationexcel probability formulasoption implied volatilityvix etf 3xvariance function in excelfxa etfrealised volatility formulamacd indicator tutorialvix cashhow to compute skewnesscalculating historical volatilityhow to find median with even numbersoptions on vixstandard error of the mean formula excelinverse volatility3x volatility etfnormsdist calculatorfinding averages in excelderivation of black scholes option pricing formulapro shares ultra shortcall spread payoffannualization formulastandard deviation formula financedaily volatility calculation formulacomputing standard deviation in excelyen etfsoros fund management portfoliovolatile stocks meaninghow to calculate arithmetic average returnmerits of geometric meanipath s&pvix realtimecalculate moving average excelhow to calculate thetaannualized standard deviation formulalog formula in excelmoneyness optionshort term macd settingsvix tradingblack scholes formula put optionvix chartd2 calculatoraveraging percentages calculatorformula for calculating average in excelcalculate delta of call optionnormdist excel examplebullish call spread