CorrelationMap™ ... always one step ahead !

CorrelationMap™ is a smart new quantitative analysis tool, it helps you discover, analyze and apply correlations and lead-lag relationships between markets, for optimization of your trading, hedging and portfolio management decisions.

CorrelationMap™ shows you at a glance, how correlations and interdependencies between markets are evolving over time.This professional tool has been developed by Weiss & Quast, a Financial Industry Consulting group with more than 25 years in business.

When two markets are found to be correlated, it is tempting to assume that this shows that one market causes the other. However, correlation does not imply causation. When two events are occurring together (are correlated), they do not necessarily establish a cause-and-effect relationship.

In practice, there exist many lead-lag relationships between the Bond, Stock, Commodities and Forex markets. However, these dynamics are often changing over time and are not carved in stone.

Investigate such intermarket dynamics with CorrelationMap™, and discover true lead-lag relationships you can utilize for your decisions.

GDX (Gold Miners ETF) vs. GLD (Gold ETF):

Here you can see, that beginning September GDX is leading GLD with a lag of 1-3 days. The dark green (high positive correlation) area is asymmetrically distributed around the zero line, the major part of that area lies above that line -> this means, GDX leads resp. GLD lags.

CorrelationMap™ results applied to trading: GDX may be used temporarily as a predictor for GLD.

SLV (Silver ETF) vs. GLD (Gold ETF):

Here the dark green (high positive correlation) areas around the zero line are indicating a strong correlation on the one hand. On the other hand, however, there is no indication of a clear leadership of one market, because the high-correlation area (dark green) is symmetrically distributed around the zero line.

CorrelationMap™ results applied to portfolio management: SLV and GLD are highly positive correlated, with the correlation being quite stable over longer time. Thus, holding GLD and SLV positions simultaneously means risk aggregation !

VXX (S&P500 Volatility ETF) vs. SPY (S&P 500 ETF):

Here the dark red (high negative correlation) areas around the zero line are indicating a strong negative correlation 90% of all times.

CorrelationMap™ results applied to hedging & portfolio management: VXX is a perfect instrument to hedge a SPY position. Thus, holding SPY and VXX positions simultaneously means risk mitigation !

IEF (7-10-year US Treasury Bonds ETF) vs. SPY (S&P 500 ETF):

Here the dark red (high negative correlation) areas around the zero line are indicating a rising negative correlation since early October 2017.

CorrelationMap™ results applied to hedging & portfolio management: The classical inverse relationship (negative correlation) between Bonds and the stock market does not hold always (only 70% of the time), there are periods where such relationship is sharply broken.

IEF (7-10-year US Treasury Bonds ETF) vs. GOLD (Gold ETF):

More than 95% of the time there is a strong positive correlation between gold and bonds. The distribution of the dark green areas is symmetrical, thus we see no clear leader or laggard.

CorrelationMap™ results applied to hedging & portfolio management: IEF and GLD are highly positive correlated, with the correlation being quite stable over longer time. Thus, holding IEF and GLD positions simultaneously means risk aggregation !

Explanatory notes:

Most important are the dark green (>=0.9) and dark red (<=-0.9) areas, they represent the most significant, reliable and tradeable correlations.

The upper half of the map (above the zero line, lag 1..30), shows the lagged correlations between today's price of Data2 vs. the price of Data1 1..30 days ago. Lagged positive correlations (dark green areas) may indicate, that Data1 lead Data2.

The lower half of the map (below the zero line, lag -1..30), shows the lagged correlations between today's price of Data1 vs. the price of Data2 1..30 days ago. Lagged positive correlations (dark green areas) may indicate, that Data2 lead Data1.

Indicator parameter settings (Premium and PRO versions only):

Data input: price(default), roc (rate-of-change, return), mom (momentum), lrs(linear regression slope)

Correlation_Type: r (Pearson's r), phi, rho tau(Kendall), r2(r-squared), covar(covariance)

Correlation_Calc_Length: Number of bars for calculation of correlation

Maximum_Lag: Select your lookback/lag period (number of bars) you want to be displayed

AutoCorrelation: 0 (default setting for correlation between two markets), 1/2 for autocorrelation of one of the data series

Smoothing: none(no smoothing, default), sma(simple moving average), wma(weighted moving average), xma (exponential moving average)

Smoothing length: Length(bars) for the smoothing moving average (if smooting is not set to "none")

ROC_length: Length(bars) for ROC, if you select Rate Of Change (instead of price) as input

Momentum_length: Length(bars) for momentum, if you select Momentum (instead of price) as input

LRS_length: Length(bars) for linear regression slope calculation, if you select linear regression slope (instead of price) as input