Abreast of the Market_ StocksAndOil

Abreast of the Market_ StocksAndOil - Abreast of the Market...

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See a sample reprint in PDF format. Order a reprint of this article now ABREAST OF THE MARKET AUGUST 16, 2010 Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit www.djreprints.com By CAROLYN CUI From Houston to New York, energy traders and commodity investors are watching a new and unusual market phenomenon: a persistently high correlation between oil and stocks. Crude oil is now influenced more by the stock market than by its own inventory levels or demand patterns. 500-stock Index hovering around 70%, doubling the average of 34% since 2008. Oil and stocks aren't supposed to swing in sync with each other. Unlike stocks, which are priced off corporate earnings, oil is usually driven by supply-and-demand dynamics. Since oil started trading in 1983 at the New York Mercantile Exchange, the linkage between the two markets averaged a meager 0.1%. Though there have been sporadic spikes, it has never stayed at such an elevated level for as long as it has lately. The typical low correlation causes many investors to include commodities into their portfolios of stocks and bonds to diversify and smooth out swings in their other investments. Oil and stocks started to walk in parallel when the financial crisis erupted, as all markets were jolted by the same broader economic conditions. Many investors had expected that to be a passing trend. Instead, the linkage has been in place ever since and recently grew even stronger. Last week, this high correlation was a
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This note was uploaded on 10/31/2010 for the course NBA 6730 at Cornell.

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Abreast of the Market_ StocksAndOil - Abreast of the Market...

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