Compelling Relationship - Fed Actions vis a vis S&P 500

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Nichoman's picture
Nichoman
Status: Gold Member (Offline)
Joined: Nov 1 2008
Posts: 422
Compelling Relationship - Fed Actions vis a vis S&P 500

Below is a nice comparision of Fed Actions versus the S&P 500 (ZeroHedge).

 

The take home message is the statistcal comparison (correlation coefficient) using probabilities and statistics.

In general (or layperson) terms...

  1. The value is +.759
  2. A value of +.5 or greater indicates a non random, or shows a significant direct relationship or not by chance.
  3. The value of +.759 essentially is very significant direct relationship.

 

Unless one can disprove or re frame the value/limitations in the analysis and comparison process, this is an important point.

Chris or others with more financial savvy may want to expand on this...my point is purely FYI.

 

Nichoman

 

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OMO vs S&P500

Tyler Durden's picture

 

MBS

 

POMO

 

QE

 

SPX

 

Treasury

 

 

Due to popular demand, we present a chart overlaying the S&P500 and the Fed's Treasury OMO actions (not accounting for agency and MBS purchases). No comment on what may happen once QE is eased out of as expected by October.

And for the statistics fans out there, here is the correlation:

 

Nichoman's picture
Nichoman
Status: Gold Member (Offline)
Joined: Nov 1 2008
Posts: 422
Re: Compelling Relationship - Fed Actions vis a vis S&P 500

To further aid the reader...

  • The value of +.759...roughly equates to over a 95% percent probability (using Gaussian or symetrical) distribution) of a direct relationship.  This is derived from the calculated variance or more accurately, the standard deviation (chart 2).
  • The number of data points (61) is well beyond the commonly accepted minimum needed for decent analysis of GTE ~20 using probabilty and statistics.

 

Nichoman

 

rickets's picture
rickets
Status: Silver Member (Offline)
Joined: Jun 8 2009
Posts: 238
Re: Compelling Relationship - Fed Actions vis a vis S&P 500

I am curious as to how this holds up over a longer term time frame.  Its still a small set of data, even though it may be statistically relevant at this point.

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: Compelling Relationship - Fed Actions vis a vis S&P 500

Speaking strictly from a trading opportunity standpoint - Why is not important.

That the S&P is moving (rising in this time span) is.

People should have been in January 2010 OEX or DIA calls since April.  Don't concern yourself with why the price of an equity or an index is moving.  Just be happy that it is and trade accordingly. 

You could have purchased Jan 2010 OEX Calls in Apr, 5 strikes out of the money and banked a very tidy profit to put against debt reduction or preparation.

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