Correlation Coefficients

Correlation coefficients:

S&P index return and GDP growth:

GDP growth is determined by dividing the change in GDP by the previous period GDP level then multiplying by 100, GDP Quarterly growth rates were retrieved from St Louis data base available at http://research.stlouisfed.org/fred2/series/GDP/downloaddata?cid=106 . S and P 500 monthly indices were retrieved from yahoo finance URL http://finance.yahoo.com/q/hp?s=%5EGSPC&a=11&b=20&c=2003&d=11& amp;e=31&f=2008&g=m

. S and P 500 returns were calculated as follows:

Returns = (St – St-1)/ St-1

Where St, represents the current period price index value and St-1, represents the previous period price index, returns at the end and at the beginning of each quarter were selected and correlation coefficients calculated using excel, the table below summarises the results:

Correlation  coefficients

S and P 500  index returns at the beginning of each quarter

S and P 500  index returns at the end of each quarter

Correlation Coefficients

GDP

1 year(2008)

-0.96743

0.754574

2004-2008

-0.73858

-0.2061

For year 2008 S and P 500 returns (beginning of quarter) and GDP growth was -0.9743, this is a relatively strong but negative correlation meaning that as S and P 500 increased then GDP growth was declining. For year 2004 to 2008 S and P 500 returns (beginning of quarter) and GDP growth was -0.73858, this is a relatively strong but negative correlation meaning that as S and P 500 returns increased then GDP growth was declining.

Correlation Coefficients

S&P index return and unemployment rate:

Unemployment monthly rate data was retrieved from St Louis data base http://research.stloui sfed.org/fred2/series/UNRATE/downloaddata?cid=12

, the table below summarises the correlation coefficients: Correlation;

S and P 500 and  unemployment:

1 year(2008)

0.285723029

2004-2008

0.411398984

The table shows that the two variables have a positive correlation; however the correlation coefficient for the period 2004 to 2008 is greater than the coefficients for 2008. Both coefficients show a weak but positive relationship between the two variables.

Correlation Coefficients

S&P index return and consumer confidence index:

Consumer confidence (consumer sentiment) index was retrieved from St Louis data base

http://research.stlouisfed.org/fred2/series/UMCSENT/downloaddata?cid=98 , the table below shows the correlation coefficients:

Correlation  coefficients

S and P 500  returns and consumer confidence index

1 year(2008)

-0.09132

2004-2008

-0.45626

The coefficients indicate a weak and negative relationship. However the 4 year period coefficient is greater than the one year period coefficient.

Correlation Coefficients

References:

St Louis website (2010) Consumer sentiment index, retrieved on 25th January, from

http://research.stlouisfed.org/fred2/series/UMCSENT/downloaddata?cid=98

St Louis website (2010) Gdp percentage changes (quarterly), retrieved on 25th January, from

http://research.stlouisfed.org/fred2/series/GDP/downloaddata?cid=106

St Louis website (2010) Unemployment rates, retrieved on 25th January, from http://research.s tlouisfed.org/fred2/series/UNRATE/downloaddata?cid=12

Yahoo finance (2010) S and P 500 historic prices (monthly), retrieved on 25th January, from htt p://finance.yahoo.com/q/hp?s=%5EGSPC&a=11&b=20&c=2003&d=11&a mp;e=31&f=2008&g=m