Trends Often Uncover Opportunities

Posted in: Economics, General, Stock Market, Thought of the Week

Correlation is a measure of how two securities move relative to each other, and it can oftentimes be an extremely useful tool to spot relationships in the markets. Observing correlations is very popular in investment management because it offers a visual representation of a relationship that could otherwise remain hidden if we were to only look at the numerical returns of two securities. Once we witness a situation where correlation is breaking down, a potentially profitable trading opportunity has arisen.

Correlation analysis is a powerful tool to spot changes in relationships but one must be careful to avoid making an investment decision without first doing a thorough analysis to determine the root cause for the relationship and why it broke down. Read this week’s Thought of the Week to find out where our investment committee is finding a correlation breaking down.

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As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market.  Written by our investment committee at GFPC we find these thoughts to be informative and interesting.