Interesting data released by Commsec

[Investor Signposts, 11/9/11] about the relationship between the Australian and U.S. stockmarkets:

” One thing has become abundantly clear over the past few months. When there is turmoil, the Australian sharemarket will slavishly follow the US. But in times of calm, the Aussie market will go its own way. In the first three months of the year the R-squared measure – or measure of the relationship or correlation – between the Dow Jones and Australian All Ordinaries was 0.28, where a result near 1.0 would suggest the two indexes were moving in tandem. But since July, the correlation ratio between the two indexes has held at 0.90, suggesting a very tight relationship.

It’s worth reflecting on earlier periods as well. In 2005 when economies and markets were reasonably settled, the correlation ratio between US and Australian markets was just 0.20. But the R-squared was an impressively precise 0.96 in 2008 and 0.92 in 2009.”

The moral to the story is that Australian “fundamentals” will always take a back seat when there are times of turmoil abroad.

We at Harvest, suggest that investors who are looking at their superannuation account balance and investments generally, are cognisant of this correlation. Doing so will ensure good decision making.