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How much of a connection would you say there was between Canadian and American stock markets? If so - why. Any numbers/analysis to prove/disprove this connection would be appreciated.

Many thanks!
 

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Interesting question. What you are looking for is a correlation analysis between the two. Conventional wisdom has been that they are closely correlated because of the interconnection of our economies, but I have not seen the degree of correlation quantified. (Although I'm sure some number-crunching anlayst has done it.) And I think the past decade has thrown conventional wisdom out the window. For example you can plot S&P/TSX against S&P500 (CDN$) for the past 10 years on Globefund, and there has been quite a divergence.
 

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Discussion Starter #3 (Edited)
My question was based upon my thoughts of moving money away from the American markets. I don't see the growth of its Intrinsic value within its economy as being as much as markets of say China, India, Canada, Australia.

Either way - I think the US market will be heading down and was wondering whether my money in the Canadian market would be affected by a US downturn.

I just looked up some charts for a 10 year period for the TSX and Dow Jones. They look pretty much the same. So I guess - yea there is correlation :p

TSX


Dow
 

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TSX


Dow
[/QUOTE]

It would be interesting to see those charts in months, weeks and even days to see how to long it takes for the Canadian market to move after the U.S. does.
 

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I think I've seen the statistics somewhere, but I can't remember the exact figures. The historical correlation coefficient between the Canadian and US stock markets is around 0.9, even after taking into account currency differences. This doesn't really say much, since the correlation coefficient only tells you that the two markets tend to move in the same direction at the same time. It says nothing about the relative degree of magnitude of those moves. I think you need to examine the covariance for that.

I will try to look up the correlation data and hopefully post it later.
 

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I don't see the growth of its Intrinsic value within its economy as being as much as markets of say China, India, Canada, Australia.
The counterpoint to that is that generally the markets increase over time. If you're suggesting that the US is going to stay low (but later in the future it must go high again) then what you're doing is selling low and buying high. I think a case could be made with your assumptions that now's the time to get into the US (not that I'm suggesting that).

You also need to appreciate that you're possibly taking currency risk when you're dealing outside. And that's huge. I've lived that over the last 10-15 years. I remember charging US clients $1000 and getting almost $1700 in the bank. I also remember more recently :) charging US clients $1000 and getting $950 in the bank. I've watched the US part of my company earnings drop that significantly over just the last 10 years or so. yet when I was younger the Canadian dollar was what, 2X the US dollar?

There are ways to protect against currency risk if in fact you are assuming it.
 
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