Correlation stock market

Correlation stock market

Posted: Jamm Date of post: 20.06.2017

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Correlation Coefficient

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NIFTY 50 9, Select Portfolio and Asset Combination for Display on Market Band. Download ET MARKETS APP. Drag according to your convenience. The rupee and the Sensex enjoy a positive correlation and mostly rise and fall in tandem.

Correlation Coefficient [ChartSchool]

Since the start of , both the Sensex and the rupee have gone from strength to strength. Does this mean one can predict the future movement of the Sensex based on the trajectory of the rupee and vice-versa.

The data of the past 10 years shows that both the Sensex and the rupee movements share a strong positive correlation: When markets go up, the rupee appreciates, and vice-versa. There is a correlation of 0. The Sensex and rupee follow a similar trend Barring the period , the rupee has risen and fallen with the market—though not by the same degree Source: Among the various factors, say experts, the primary one behind the positive correlation between the rupee and the Sensex is FII flows.

As a direct consequence of FIIs pouring in money, the market rises. Since FIIs need the Indian currency to invest in the Indian market, the demand for the rupee goes up, in turn, boosting the currency. This is a mutually beneficial, positive cycle. But the reverse too is very much a possibility. For instance, in bad years, when there are FII outflows, the markets go down and the rupee depreciates.

What is noteworthy is that in either of the cycles, the rupee and the market move in a similar direction.

FII inflows strengthen the rupee and the market When FIIs pour in money, the market rises and so does the demand for the rupee, appreciating the currency.

MarketSmith India A temporary disconnect Sometimes, there could be a temporary disconnect between the Sensex and the rupee movements. For instance, during to , markets were rising, but the rupee saw a decline.

This was mainly because of some temporary, albeit strong factors, influencing the currency. These included global geopolitical developments, local political issues, rise in crude oil prices, lack of adequate rains and its impact on growth and inflation, etc.

But, even so, during this period, the Sensex and the rupee had a positive correlation of 0. A strong performance in So far, in , both the Sensex and the rupee have seen a strong performance. The correlation between the two will likely increase in the years to come, say experts.

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correlation stock market

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