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Oil correlation or not?


Come-on now!

Thought I'd post a quick note about something that grates on my nerves.

Over the past few weeks and months you've been hearing the teletubbies talk about the negative correlation of oil prices to the market and imply the moves in equities are a result. Scott Reamer, during his incredible presentation in the Butte, discussed the absurdity of these types of comments. "Correlation does not imply causation."

While sitting here, watching the evil black box, I noticed they just discussed the price of oil and its negative correlation to the transportation index. Hence, I wanted to post the following graph.

WONDA Copyright 2004 William O'Neil + Co.,Inc. All rights reserved.

Two important issues to take note of...

- There have been 5 times when these two indices have been correlated positively and 6 times when correlated negatively over the last 14-years. In other words, statistically nothing can be deduced from this information.

Second - If we were to assume what some are saying about the negative correlation of oil prices to the transportation index, then, well, um... doesn't the graph show a positive correlation since the beginning of 2003? Just wondering!

Be careful what you decide to listen too.


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