Correlations: Stocks Around The World vs NIFTY 50

JC Parets
January 22, 2018

I get asked all the time, "JC why should I care what's happening in Finland or Canada if I'm just trying to make money in stocks here in India?"

This is certainly a valid question and one that I think we need to address here before moving any further. Let's remember that this is a "market of stocks" and not just a "stock market". In other words, while things like the NIFTY50 and the S&P500 are indexes and a good gauge for the health of the overall market, there are many individual components that make up these averages. Oftentimes, that gets lost in the shuffle.

To add to this thought, let's also remember that "Stocks" as an asset class are represented by companies all over the world in many different countries. These countries' stock market averages tend to move in sync. In other words, the S&P500 is not going up or down because of what is happening in America. It is going up despite what is happening in America and in a solid uptrend along with the rest of the world. I can make the exact same case for the NIFTY50 and stocks in India. They have not been rallying simply because of what is taking place within the borders of India. These stocks have been rallying as stocks all over the world have been rallying.

This is the list of county indexes that we analyze on a weekly basis to come up with our more global thesis. This is where it all begins and you can see that in our Monthly Video Conference Call last week for Premium Members of Allstarcharts India. You'll notice how each one is on both a weekly and daily timeframe to first get structural perspective and then dive down to a more short-term tactical time horizon:

To really explain the high correlation between stocks in India and stocks all over the world, I took the largest 40 stock markets and equally-weighted them to create my own Allstarcharts Global 40 Index. This way, no one country carries more weight than the others, which gives us a clean picture of what is actually taking place in stocks as an asset class. You can see here this chart is overlaid with the NIFTY50 Index:

Had I removed the chart labels and the numbers on the y-axis, I doubt you would be able to tell me which one is which. I know I would certainly have a hard time and I'm the one who built this chart.

The point is that they look exactly the same. To me, it would be irresponsible not to take this observation seriously and think globally when analyzing the stock market, in India or otherwise.

Please feel free to email me if you have any questions.

Cheers,

JC

 

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