Tuesday, 10 March 2020

Correlation between BSE Sensex and S & P 500

 This article examines the correlation between BSE Sensex and S & P 500. If we look at the chart below, there is a definite pattern which is more acute post 2008. S & P 500 can be viewed as a proxy for global cues.

In the figure below, BSE Sensex year on year change has been regressed against S & P 500 and the beta of the regression is 1.0136 with r-squared of 0.25. Although the r-squared is low, the responsiveness of Sensex to S & P 500 is close 1.

If we look at the correlation between the year on year changes in these two indices we have the following results.

So it is safe to conclude that Indian investors do look for global cues and the degree of correlation has in fact increased in the past five years.

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