Usually, I can calculate daily ES gain or loss by adding YM and NQ gain and loss and dividing it by 2 and this is almost accurate in 95% of the time. Today oil is flat or down a little and NQ and YM are both up about 0.2% but ES is down. what is going on?
These correlations come and go. The obvious answer should be that some components in SPX is putting a weight on that index. Doesn't look too out of whack today to me, though. But I'm no expert.
The differential gain/loss is heavily traded. Since the CME gives a 70% margin discount on the correlation, this trade is highly leveraged. Remember, if there is a strong correlation among leverageable assets, in this case NDX and SPX, then you can either trade the outperformance of the tech index with a long/short position in NQ vs ES, or you can overweight the SPX and hedge out some vol by shorting the correlated NDX futures. A high degree of correlation can be used to trade an outperforming asset, and if inversely weighted, the more volatile asset can be used to hedge exposure to the underperformer.
%% ONE public profit YM [intraday] trader put on quite a few public profit YM trades, elitrader.com. He did diverge from Merriam Webster's idea+ had a great quote. One trader asked ''dont you ever look @ oil? He said ''No , YM is correlated to itself''
It was my long term observation which was true 95% of the time. My reasoning was that DOW is less volatile than Nasdaq and S&P is something between. So if DOW is up 0.5% and Nasdaq is up 1.5%, usually S&P is up 1% (95% of the time this theory is true).