Phone: +91-9740523095

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CORRELATION BETWEEN US INDICES AND BSE SENSEX

Before I present my analysis, I would like to bring readers attention to significantly less number of BSE
Sensex’s trading days than of US Indices’. We have calculated that BSE worked 11 days less in 2009(till
October 09) and 14 days less in 2008 in comparison with Dow Jones and other US key indices. In 2008,
the average business at BSE was around US$40B/month, and thus had we been more sensible in
observing holydays, we could have done additional business of US$5-10BN (Cost of Diversity?). In 2008,
BSE has declared around 17 holydays whereas NASDAQ observed around 9 days only. Our market opens
up at 8am and closes at 5:30pm whereas NASDAQ opens up at 7:00am and closes at 8:00pm. I sincerely
hope we will see some actions from SEBI on timeline and productivity improvements in coming time.

Now let us start reviewing the data and outcome of present theme. We carried out correlation analysis
between BSE and US key indices (Dow Jones, S&P, and NASDAQ). The exercise was to identify how
strongly correlated is Indian market with respect to US market and second, which index influences
Indian market the most. (The returns are from 1st March 2007 to 9th October 2009)

Here are the key takeaways:-

 Dow Jones and BSE are more strongly correlated than S&P and Nasdaq index
 BSE is approximately equally correlated with NASDAQ and S&P Index.
 BSE average daily returns are positive whereas average returns for all US index are negative
 BSE Sensex shows higher volatility and variability than US indexes(Dow Jones, S&P and Nasdaq)

Correlation Summary

BSE & BSE and

NSADAQ S&P BSE & DOW JONES
Correlation 0.33 0.34 0.37
Covariance 0.00017 0.00015 0.00016

Performance Summary:

Dow
BSE S&P Nasdaq Jones
Average Return 0.037% -0.042% -0.019% -0.034%
Standard
Deviation 2.43% 1.91% 2.08% 1.87%

Performance summary shows that BSE is winner in terms of daily returns (at higher volatility)
but DOW Jones offers lesser volatility among all compared indices.

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The analysis is based on daily returns data from 1st March 2007 to 9th October 2009. If we chart BSE
returns, Dow Jones data, it will look as given below:

BSE SENSEX -(Oct08-Nov09)

18000
17126.84 16848.83
16000 15666.64
14000
14625.25
12000 11403.25
10000 9788.06

8000 8891.61
9647.31
6000
4000 Adj Close
2000
0
1/15/2009

2/15/2009
3/15/2009

4/15/2009
5/15/2009

6/15/2009
7/15/2009

8/15/2009

9/15/2009
10/15/2008

11/15/2008
12/15/2008

10/15/2009

S&P chart is as given below:

S&P 500 Index(Oct08-Nov09)

1200
1057.08 1093.48
1000 968.75 987.481020.62 1036.19
903.25
896.24 872.81 9
919.1419.32
800 825.88 797.87
735.09
600
400
200 Adj Close
0
1/15/2009

2/15/2009
3/15/2009

4/15/2009
5/15/2009

6/15/2009
7/15/2009

8/15/2009

9/15/2009
10/15/2008

11/15/2008
12/15/2008

10/15/2009

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And Dow Jones performance is as given below:-

Dow Jones (Oct08-Nov09)

12000
10000 10270.47
9325.01 9712.73
9171.61
8000 8000.86 8168.12 8447
7062.93
6000
4000
Adj Close
2000
0

All indices clearly shows that they had bottomed out in the month of February 2009 and then recovery
process has already begun.US recovery is so far based on solely fiscal stimulus and monetary policies,
which resulted in increased business activities. In India case, market also reacted positively to decisive
victory of UPA. US market and Indian market is tightly coupled and hence if US does not see expected
recovery by 2010 than it will have a definite negative impact in our domestic market performance.

PS: Historical pricing data is available on Finance-Yahoo, if someone is interested to look at our excel
data with returns calculation, please e-mail us at service@whitemonk.in

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