Wednesday, July 1, 2015

Cyclical behaviour of AU stocks against US stocks

Pretty impressive volatility-normalized pair chart* of AU stocks (EWA) against US stocks (SPY):

So maybe those who believe in overpriced S&P 500 and low future long-term returns should start looking into AU stocks. To be sure it's better wait for a momentum reverse.

* Pair charts with each side being volatility-normalized are supposed to show
mean-reverting behaviour because a long-term trend would mean that one side of
the pair is consistently better in terms of return/volatility, which goes
against CAPM.

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