Correlation Heatmap

Please note that this should still be considered a work in progress or a beta version. If you find any bugs or have any suggestions, please don't hesitate to contact me.

The Correlation Heatmap is one of the tools I use to find out what drives what (and what doesn't) at the moment. Here's what it looks like:

Note the diagonal line going from the top left to the bottom right. It's dividing the map into two sections that show different data: the top/right shows a rolling 100-day correlation, and the bottom/left shows a rolling 30-day correlation.

Since this is a pretty exhaustive thing to go through and there are a few different correlations I'm always interested in, I put that together in a handy little cheat sheet:

  • Each currency vs. its own 2y and 10y yields as well as its 2s10s,

  • each currency vs. the ES and the VIX,

  • each currency vs. their own domestic stock market, and

  • some special correlations for several currencies.

The top row shows the 30-day correlation, and the row below shows the 100-day correlation.

Here are some examples of what I can learn from this and why it's valuable to me: right now…

  • EUR and JPY both show very high short-term correlation with their 2s (not surprising given the recent actions of the ECB and the BOJ),

  • The correlation between JPY and its 10s has gone up from 0.44 at 100 days to 0.86 over 30 days (which is also what I would have expected given the BOJs latest decision),

  • The USD has a very high negative 100-day correlation of -0.80 to the ES but it's uncorrelated to EUR (-0.08),

  • JPY strength is (as expected) negative for the Nikkei (30-day correlation at -0.89),

  • EUR and BTPBUND have been negatively correlated over the last 100 days but that has switched to +0.78 over the last 30 days,

  • AUD and Iron Ore have fallen out of love, AUD and GC are uncorrelated at the moment,

  • AUD and NZD are completely uncorrelated,

  • CAD goes where USD goes (+0.87 and +0.57 over 30 and 100 days, respectively).