Oil, gold and stocks have been in a rally since 2009. Those who jumped on that rally made tons of money.

There are only one type of strategy which worked for equities since 2009, long only strategies - for gold and oil short only strategies. It dosnt take a PH.D to make a long only strategy, anyone can do it.

But, the lower timeframe, the more correlated - the higher timeframe the less correlated. This is normal.

Umair, please understand that I do not have any degree’s, in fact never went to college. In your statement “A price of X will rise because it derives its value from Y”,

I have been searching for Y now over 20 years. I, too, am just thinking out loud here. I see no reason that 100% of the portfolio can not be correlated with qualifications

of course.

all the best

"Should" is such an interesting word and the source of many troubles both in trading and other areas of life as well.

Have a look at the Cointelation model it should hopefully shed some light around expectation of measured correlation as a function of timescale for commodities and their equities mirrors:

video 1st part: https://www.youtube.com/watch?v=F_tsSKMI818

video 2nd part: https://www.youtube.com/watch?v=W4r2-rruP8c

paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2429120

for more info: http://eqrc.co.uk/projects/rmcandc/

why don't you just fade these PhD's then..so simple

The current correlation between equities and crude oil is driven by sentiment. The price of crude oil is being viewed/being used as and indicator that shows the health of the global economy.The correlation is us, market participants.

Correlation is time varying and it can reach to extreme levels and stay there longer than one can imagine. If we model cross section of excess returns as multi-factor model, explanatory power of the model would be time varying as well. Nowadays, one factor dominates the model. If your investment horizon is long term you should not be concerned too much about short term correlations but if your horizon is just minutes never rely on long term supply and demand since market microstructure and correlations dominate in short term. My 2 cents.

Everybody knows buy low, sell high, but do they know where the lows and highs are down the road, on a going forward basis, before anything-everything happens? If a model, a PhD, MBA, professor can’t tell you that, then they are useless, right? Buzzwords like “correlation”, “ratio”, “alpha”, “liquid alts”, “platform” (whatever that means) are not going to help you figure out where the highs and lows are before they happen. Like anything, everything from the Street, the “mainstream” establishment, they are nothing but rubbish.

I don't know why to doubt the market. Correlation is something objective. It's calculated, rather than being thought out. If your model makes money, it's a good model for no reason. I think financial market is much like a casino, especially derivative market. It has a contribution to the real world economy and underlying company only when IPO and paying dividends. Trading is a zero sum game, and if it is a game, a gambling, or a speculation, why do you bother to care about microeconomics or any reasons making sense?

Your firm is responsible for theses models and then you ask for forgiveness ? You most be joking.

statistical arbitrage algos flooding the market are reducing inefficiencies among different asset classes. However the market is returning to fundamentals

I think that we forget that human behavior has its own dynamic, and more pronounced when it comes to money matters. It is labeled as greed and fear that drives the price. However, correlation between two asset classes works within a range. It is buyers and sellers and their perception of future and expectations that results a prevailing price, and they act to protect their interest and when they do then they are looking at any algorithm. The markets test the risk appetite and those gaining or loosing (should) know their stake!

The correlation, as a core engine, is subject to re-assessment!

Thanks

It is buyers and sellers and their perception of future and expectations that results a prevailing price, and they act to protect their interest. Do they look at any algorithm? Definitely no...! Sorry typo mistake in earlier comments.

Problem is methodologic. Correlation coefficient is realiable in linear relations among variable. Because of this, we can't comment results of linear analysis as a indicator in nonlinear pattern. Correlation coefficient is a linear scale too. It is not reliable exactly.

Kevin - correlation can actually tell you of future high/lows, turns, moves. You just need the right tools. Correlation, or rather something which is not correlation, but can be described as "correlation" is a key in todays trading and TA.

Markets are just held hostage by the central banks pumping liquidity into the markets. History about price bubles tell the story just fine, and the path going forward.

You're so correct in your observation. Confirmation bias all over the place.