Chart of The Day: Oil Correlation To Equities

We have been arguing that industrial commodities such as energy and base metals are highly correlated to risk appetite and hence equity markets. Below we highlight the monthly rolling correlation between Brent Crude and the Dow Jones. The two main things to note are that first, on a monthly basis, the correlation stands at 0.9 (implying a strong and positive correlation), which is its highest level since 1990 - our earliest data point. Secondly, we see potential for this correlation to remain strong for some time as cheap money finds its way into 'risky assets' such as equities and industrial commodities, particularly energy and industrial metals.

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