Correlation between real estate and stock market

[Sniper]

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You are right. But the question is how much wealth do consumers have invested in various things. Do average Americans have 10 trillion dollars in commodities? Or is it mostly in mutual funds and in real estate? For the average American, real estate and stocks are the main investment vehicles.

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You are forgetting to account for the actual distribution of wealth!

The vast majority of wealth is held by a relatively small group... lets call them the top 10%... and thus in $$$ terms, a vast amount of $$$ is allocated to investments other than the stock market or real estate.

Additionally, beyond 1st home purchases, relatively few people actually invest in income producing property. Certainly much less than the number of people who have 401Ks.

[eastbay]

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Your original premise was this...

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A common sense idea is that when people have extra money to invest, they have two main choices: stock markets or real estate. Given that people are tending to make either/or choices, when one is hot, the other should cool, and vice-versa.

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Your premise is flawed because these are not the only two choices that people make as to where they should invest their money, as I detailed...



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Obviously I know there are more than two, but it's still a legitimate question as to whether there is enough of counter-flow to produce a negative correlation.

As I also pointed out before, volume in FOREX could be entirely irrelevant, for example if FOREX trading is independent of stocks or real estate markets.

I'll take a look at the links.

eastbay

[eastbay]

Some of these articles appear to be confusing "low correlation" with "large negative correlation." This is disturbing.

eastbay

[Sniper]

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Some of these articles appear to be confusing "low correlation" with "large negative correlation." This is disturbing.

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Low correlation implies that there are external factors which might affect both similarly in a minimal way.

Large negative correlation implies selection of one over the other at various times. While I would agree that there is sector rotation in the stock market between REIT and other sectors. I do not believe there to be the type of inverse correlation between the housing market and stock market in general, that you suggest.

Did you find a useful graph anywhere?

[eastbay]

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Some of these articles appear to be confusing "low correlation" with "large negative correlation." This is disturbing.

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Low correlation implies...


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I know what correlation is.

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Did you find a useful graph anywhere?

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I did find one for the past couple of decades, but I don't have the link handy. It did show negative correlation for the period 90-05, but showed positive correlation between 80-90.

eastbay

[Sniper]

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I know what correlation is.

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Obviously, but this wasn't a PM... I'm sure there are some people still wondering what we are talking about [img]/images/graemlins/wink.gif[/img]

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I did find one for the past couple of decades, but I don't have the link handy. It did show negative correlation for the period 90-05, but showed positive correlation between 80-90.

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So, what does that tell you? [img]/images/graemlins/wink.gif[/img]

[eastbay]

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I know what correlation is.

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Obviously, but this wasn't a PM... I'm sure there are some people still wondering what we are talking about [img]/images/graemlins/wink.gif[/img]

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I did find one for the past couple of decades, but I don't have the link handy. It did show negative correlation for the period 90-05, but showed positive correlation between 80-90.

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So, what does that tell you? [img]/images/graemlins/wink.gif[/img]

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Inconclusive.

I think it may be interesting to look at periods of unusually strong trending activity.

eastbay