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XBB and correlation between Canadian Stocks & Canadian Bonds

March 13, 2011 Leave a comment

XBB – Conflicting technical signals

  • XBB broke out of recent downtrend line but… not above the previously broken long-term uptrend line
  • RSI & MACD are rising but price is declining
  • Also death cross signal – 50 day SMA crossed 200 day SMA from above

Fundamentally, Canadian interest rates are bound to rise in the near future which is not good for bonds.

Conclusion…keep a close watch for the next couple weeks

What is the correlation between returns on Canadian stocks and Canadian bonds?

I’m going to use the bond ETF, XBB to represent the DEX Universe Bond Index and S&P TSX Composite to represent stocks.

Correlation of Daily Returns is:

  • fairly volatile for smaller samples i.e. less than 3 months. (blue & green lines)
  • low and positive from 2001 to March 2010
  • -0.2 since March 2010 i.e. when one goes up, the other goes down.

Lets look at the correlation of monthly returns… partly because the daily volatility has been much higher since the financial crisis and that might bias the results. Again, it is a similar story, the smaller the sample, the greater tha

Correlation of monthly returns is similar to daily returns except:

  • 12 month rolling correlation deviates between 0.5 and -0.5 which is on the high side.
  • 3 yr correlation has been positive and low, around 0.1 since Jan 2009.

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Asset Correlation: Gold, Bonds, Yen Provide Diversification

October 8, 2010 Leave a comment

Nice chart/matrix showing correlations between several asset classes and markets

click for giant chart

hat tip Trader’s Narrative