Correlation coefficients: oil, natural gas, biofuels and the broader US equity indices

NOTE: Correlation Analysis can be used as a foundation for AI/ML model training to develop trading decision support applications and quantitative algorithms. Understanding historical correlation trends is vital to effectively training econometric trading decision support models. This framework illustrates important correlations back to 2012, as a potential framework for model development.

Correlation Coefficients UNG, QQQ, SPY:

Last month, I correlated oil, Natural Gas and broad equity market ETF’s to the Groundbreaking Energy BioIndex, an equally weighted index of 8 biofuels equities.

I have updated that correlation table for 2012 YTD as of March 31st:

Witness the tremendously strong negative correlation between UNG, QQQ and SPY!  Compare this to last month’s correlation table.

Conclusion

The Biofuels equities price movements, in aggregate, do not appear at all to be directly correlated with the broader Nasdaq and SPY.  BioIndex price movements, however, do continue to be negatively correlated to the price of US oil (via the USO ETF) to a moderately strong degree.

Natural Gas price movements exhibit a tremendously strong negative correlation with the broader equity indices, and that correlation grew in March.  Perhaps UNG investors can get some relief from the beating they have taken in 2012 by using UNG as a directional hedge against negative movements in the broader market.  Time will tell if this becomes a viable strategy.