Best Indicators, from Victor Niederhoffer
Goldman May Have Ousted Citigroup as Market Indicator, WSJ Says
March 13 (Bloomberg) — Goldman Sachs Group Inc. may have taken over from Citigroup Inc. as the best indicator of U.S. financial companies' health, the Wall Street Journal reported.
It's at the heart of the recent boom in bond sales, increasing use of derivatives, growth of hedge funds and buyout activity, the newspaper said.
Todd Harrison, the founder and chief executive officer of Minyanville.com, says what happens to Goldman shares on any given day is a good indicator of what's happening to the market as a whole, the Journal said.
This story, though lacking quantification, suggests many avenues of research. For example, what is the best predictive market indicator, which market is most correlated with others predictively, and, when certain relations hold is it bullish or bearish?
Sam Humbert adds:
I made a file of daily prices, from 2000 to now, of SPX and the usual brokerage suspects — GS C MS MER BSC LEH — and wrote a quickie R script to display the correlation matrix of daily contemporaneous log-changes, broken down by year.
"As advertised," among the brokers, C was the most correlated with the SPX every year from 2000 to 2004, whereas GS has been the most correlated, by far, in 2007 to date. My script/output follows:
> Data<- read.table('f:/BROKERS.txt',header=T)
> head(Data); tail(Data)
DATE--------Y---M--D-W---SPX-----GS----C----MS----MER----BSC---LEH
31-Dec-99 1999 12 31 5 1469.25 94.19 38.76 71.38 41.75 42.75 21.17
3-Jan-00 2000 1 3 1 1455.22 88.31 36.88 67.50 40.31 40.13 19.77
4-Jan-00 2000 1 4 2 1399.42 82.38 35.27 62.81 38.78 38.69 18.59
5-Jan-00 2000 1 5 3 1402.11 78.88 35.45 60.13 36.72 37.44 17.50
6-Jan-00 2000 1 6 4 1403.45 82.25 37.80 61.25 38.19 37.94 18.22
7-Jan-00 2000 1 7 5 1441.47 82.56 38.02 63.28 38.41 38.06 17.75
DATE--------Y---M-D-W---SPX-----GS-----C-----MS----MER---BSC---LEH
5-Mar-07 2007 3 5 1 1374.12 190.00 49.25 71.64 79.97 144.50 71.12
6-Mar-07 2007 3 6 2 1395.41 197.37 50.58 73.55 82.10 149.00 74.23
7-Mar-07 2007 3 7 3 1391.97 195.59 50.22 73.89 82.21 149.37 73.90
8-Mar-07 2007 3 8 4 1401.89 199.94 50.50 75.41 83.25 152.06 75.75
9-Mar-07 2007 3 9 5 1402.85 201.70 50.33 76.00 82.95 151.98 75.83
12-Mar-07 2007 3 12 1 1406.60 202.60 50.36 76.06 83.49 153.15 76.55
> Date<- 1:4
> Diff<- cbind(Data[-1,Date],apply(log
(Data[,-Date]),2,diff))
> lapply(split(Diff[,-Date],Diff[1]),function(m) round(100*cor(m)))
$`2000`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100 59 66 62 60 53 62
GS 59 100 59 79 71 61 73
C 66 59 100 62 60 60 65
MS 62 79 62 100 80 69 78
MER 60 71 60 80 100 69 78
BSC 53 61 60 69 69 100 76
LEH 62 73 65 78 78 76 100
$`2001`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100 75 81 77 75 78 77
GS 75 100 72 85 82 80 84
C 81 72 100 78 73 76 77
MS 77 85 78 100 82 83 85
MER 75 82 73 82 100 81 82
BSC 78 80 76 83 81 100 87
LEH 77 84 77 85 82 87 100
$`2002`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100 79 83 83 81 80 81
GS 79 100 78 88 85 83 89
C 83 78 100 77 76 74 75
MS 83 88 77 100 87 83 88
MER 81 85 76 87 100 82 85
BSC 80 83 74 83 82 100 87
LEH 81 89 75 88 85 87 100
$`2003`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100 83 84 82 84 77 77
GS 83 100 77 81 82 81 80
C 84 77 100 77 76 72 72
MS 82 81 77 100 83 77 75
MER 84 82 76 83 100 75 75
BSC 77 81 72 77 75 100 82
LEH 77 80 72 75 75 82 100
$`2004`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100 72 77 70 72 59 64
GS 72 100 53 75 76 71 75
C 77 53 100 58 56 50 51
MS 70 75 58 100 79 65 70
MER 72 76 56 79 100 65 74
BSC 59 71 50 65 65 100 73
LEH 64 75 51 70 74 73 100
$`2005`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100 65 60 56 76 63 67
GS 65 100 45 63 67 64 72
C 60 45 100 49 56 42 43
MS 56 63 49 100 64 56 57
MER 76 67 56 64 100 66 70
BSC 63 64 42 56 66 100 73
LEH 67 72 43 57 70 73 100
$`2006`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100 72 64 77 70 73 73
GS 72 100 49 78 78 80 82
C 64 49 100 52 49 51 47
MS 77 78 52 100 74 78 77
MER 70 78 49 74 100 77 79
BSC 73 80 51 78 77 100 85
LEH 73 82 47 77 79 85 100
$`2007`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100 88 77 84 76 78 78
GS 88 100 71 87 82 79 75
C 77 71 100 74 68 69 61
MS 84 87 74 100 89 85 78
MER 76 82 68 89 100 89 86
BSC 78 79 69 85 89 100 83
LEH 78 75 61 78 86 83 100