Friday, March 9, 2012

The spring seems stretched to the maximum on S&P500 vs WIG20

Chart: WIG20 [in PLN] vs S&P500 since 2005, data:

Chart: WIG20 [in USD] vs S&P500 since 2005, data:

A couple of days ago I mentioned a visible decoupling of WIG20 and S&P500 indexes.

I noted that most probably it would lead to a contraction of the distance between the indexes by a larger correction in S&P500 than should be expected in the WIG20 case.

Here we have another reinforcement of this hypothesis.

The chart above shows the co-integrated trajectories of the indexes as well as their spread since 2005.

As you can see we are clearly in the lower range of the possible spread values, and at the two standards deviations away from the mean spread. This is quite an unusual situation.

Chart: WIG20-S&P500 spread distribution since 2005, data:

The history suggests that the spread can widen by some additional 10-15 pct. points in really extreme situations before it starts to contract, although such development seems currently unlikely.

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