Correlation Between Various Us Indices And Bse Sensex
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Phone: +91-9740523095 Email: [email protected]
16 November 2009
CORRELATION BETWEEN US INDICES AND BSE SENSEX Before I present my analysis, I would like to bring readers attention to significantly less number of BSE Sensex’s trading days than of US Indices’. We have calculated that BSE worked 11 days less in 2009(till October 09) and 14 days less in 2008 in comparison with Dow Jones and other US key indices. In 2008, the average business at BSE was around US$40B/month, and thus had we been more sensible in observing holydays, we could have done additional business of US$5-10BN (Cost of Diversity?). In 2008, BSE has declared around 17 holydays whereas NASDAQ observed around 9 days only. Our market opens up at 8am and closes at 5:30pm whereas NASDAQ opens up at 7:00am and closes at 8:00pm. I sincerely hope we will see some actions from SEBI on timeline and productivity improvements in coming time. Now let us start reviewing the data and outcome of present theme. We carried out correlation analysis between BSE and US key indices (Dow Jones, S&P, and NASDAQ). The exercise was to identify how strongly correlated is Indian market with respect to US market and second, which index influences Indian market the most. (The returns are from 1st March 2007 to 9th October 2009) Here are the key takeaways:
Dow Jones and BSE are more strongly correlated than S&P and Nasdaq index BSE is approximately equally correlated with NASDAQ and S&P Index. BSE average daily returns are positive whereas average returns for all US index are negative BSE Sensex shows higher volatility and variability than US indexes(Dow Jones, S&P and Nasdaq) Correlation Summary
Correlation Covariance
BSE & NSADAQ 0.33 0.00017
BSE and S&P 0.34 0.00015
BSE & DOW JONES 0.37 0.00016
Performance Summary:
Average Return Standard Deviation
BSE 0.037%
S&P -0.042%
Nasdaq -0.019%
Dow Jones -0.034%
2.43%
1.91%
2.08%
1.87%
Performance summary shows that BSE is winner in terms of daily returns (at higher volatility) but DOW Jones offers lesser volatility among all compared indices.
www.whitemonk.in
Page 1
Phone: +91-9740523095 Email: [email protected]
16 November 2009
The analysis is based on daily returns data from 1st March 2007 to 9th October 2009. If we chart BSE returns, Dow Jones data, it will look as given below:
BSE SENSEX -(Oct08-Nov09) 18000 16000 14000 12000 10000 8000 6000 4000 2000 0
17126.84 16848.83 15666.64 14625.25 11403.25
9788.06 9647.31
8891.61
10/15/2009
9/15/2009
8/15/2009
7/15/2009
6/15/2009
5/15/2009
4/15/2009
3/15/2009
2/15/2009
1/15/2009
12/15/2008
11/15/2008
10/15/2008
Adj Close
S&P chart is as given below:
S&P 500 Index(Oct08-Nov09) 1200 1000 800 600 400 200 0
1057.08 1093.48 987.481020.62 1036.19 968.75 9 19.32 919.14 903.25 896.24 872.81 825.88 797.87 735.09
www.whitemonk.in
10/15/2009
9/15/2009
8/15/2009
7/15/2009
6/15/2009
5/15/2009
4/15/2009
3/15/2009
2/15/2009
1/15/2009
12/15/2008
11/15/2008
10/15/2008
Adj Close
Page 2
Phone: +91-9740523095 Email: [email protected]
16 November 2009
And Dow Jones performance is as given below:-
Dow Jones (Oct08-Nov09) 12000 10000
9325.01
8000 6000 4000
8000.86 7062.93
8168.12
8447
9171.61
10270.47 9712.73
Adj Close
2000 0
All indices clearly shows that they had bottomed out in the month of February 2009 and then recovery process has already begun.US recovery is so far based on solely fiscal stimulus and monetary policies, which resulted in increased business activities. In India case, market also reacted positively to decisive victory of UPA. US market and Indian market is tightly coupled and hence if US does not see expected recovery by 2010 than it will have a definite negative impact in our domestic market performance.
PS: Historical pricing data is available on Finance-Yahoo, if someone is interested to look at our excel data with returns calculation, please e-mail us at [email protected]
www.whitemonk.in
Page 3
16 November 2009
CORRELATION BETWEEN US INDICES AND BSE SENSEX Before I present my analysis, I would like to bring readers attention to significantly less number of BSE Sensex’s trading days than of US Indices’. We have calculated that BSE worked 11 days less in 2009(till October 09) and 14 days less in 2008 in comparison with Dow Jones and other US key indices. In 2008, the average business at BSE was around US$40B/month, and thus had we been more sensible in observing holydays, we could have done additional business of US$5-10BN (Cost of Diversity?). In 2008, BSE has declared around 17 holydays whereas NASDAQ observed around 9 days only. Our market opens up at 8am and closes at 5:30pm whereas NASDAQ opens up at 7:00am and closes at 8:00pm. I sincerely hope we will see some actions from SEBI on timeline and productivity improvements in coming time. Now let us start reviewing the data and outcome of present theme. We carried out correlation analysis between BSE and US key indices (Dow Jones, S&P, and NASDAQ). The exercise was to identify how strongly correlated is Indian market with respect to US market and second, which index influences Indian market the most. (The returns are from 1st March 2007 to 9th October 2009) Here are the key takeaways:
Dow Jones and BSE are more strongly correlated than S&P and Nasdaq index BSE is approximately equally correlated with NASDAQ and S&P Index. BSE average daily returns are positive whereas average returns for all US index are negative BSE Sensex shows higher volatility and variability than US indexes(Dow Jones, S&P and Nasdaq) Correlation Summary
Correlation Covariance
BSE & NSADAQ 0.33 0.00017
BSE and S&P 0.34 0.00015
BSE & DOW JONES 0.37 0.00016
Performance Summary:
Average Return Standard Deviation
BSE 0.037%
S&P -0.042%
Nasdaq -0.019%
Dow Jones -0.034%
2.43%
1.91%
2.08%
1.87%
Performance summary shows that BSE is winner in terms of daily returns (at higher volatility) but DOW Jones offers lesser volatility among all compared indices.
www.whitemonk.in
Page 1
Phone: +91-9740523095 Email: [email protected]
16 November 2009
The analysis is based on daily returns data from 1st March 2007 to 9th October 2009. If we chart BSE returns, Dow Jones data, it will look as given below:
BSE SENSEX -(Oct08-Nov09) 18000 16000 14000 12000 10000 8000 6000 4000 2000 0
17126.84 16848.83 15666.64 14625.25 11403.25
9788.06 9647.31
8891.61
10/15/2009
9/15/2009
8/15/2009
7/15/2009
6/15/2009
5/15/2009
4/15/2009
3/15/2009
2/15/2009
1/15/2009
12/15/2008
11/15/2008
10/15/2008
Adj Close
S&P chart is as given below:
S&P 500 Index(Oct08-Nov09) 1200 1000 800 600 400 200 0
1057.08 1093.48 987.481020.62 1036.19 968.75 9 19.32 919.14 903.25 896.24 872.81 825.88 797.87 735.09
www.whitemonk.in
10/15/2009
9/15/2009
8/15/2009
7/15/2009
6/15/2009
5/15/2009
4/15/2009
3/15/2009
2/15/2009
1/15/2009
12/15/2008
11/15/2008
10/15/2008
Adj Close
Page 2
Phone: +91-9740523095 Email: [email protected]
16 November 2009
And Dow Jones performance is as given below:-
Dow Jones (Oct08-Nov09) 12000 10000
9325.01
8000 6000 4000
8000.86 7062.93
8168.12
8447
9171.61
10270.47 9712.73
Adj Close
2000 0
All indices clearly shows that they had bottomed out in the month of February 2009 and then recovery process has already begun.US recovery is so far based on solely fiscal stimulus and monetary policies, which resulted in increased business activities. In India case, market also reacted positively to decisive victory of UPA. US market and Indian market is tightly coupled and hence if US does not see expected recovery by 2010 than it will have a definite negative impact in our domestic market performance.
PS: Historical pricing data is available on Finance-Yahoo, if someone is interested to look at our excel data with returns calculation, please e-mail us at [email protected]
www.whitemonk.in
Page 3
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