Abstract
This study aimed to perform a screening for economic interrelationships among market participants from the stock market, global stock indices, and commodities from fossil energy, agricultural, and the metals sector. Particular focus was put on the comovements of the light crude oil benchmarks West Texas Intermediate (WTI) and Brent crude oil. In finance research and the crude oil markets, identifying novel groupings and interactions is a fundamental requirement due to the extended impact of crude oil price fluctuations on economic growth and inflation. Thus, it is of high interest for investors to identify market players and interactions that appear sensitive to crude oil price volatility triggers. The price development of 14 stocks, 25 leading global indices, and 13 commodity prices, including WTI and Brent, were analyzed via data mining applying the hierarchical correlation cluster mapping technique. All price data comprised the period from January 2012 – December 2018 and were based on daily returns. The technique identifies and visualizes existing hierarchical clusters and correlation patterns emphasizing comovements that indicate positively correlated processes. The method successfully identified clustering patterns and a series of relevant and partly unexpected novel comovements in all investigated economic sectors. Although additional research is required to reveal the causative factors, the study offers an insight into in-depth market interrelationships.
Highlights
The generation and availability of reliable prediction models highly depend on finding relevant key players that impact crude oil prices
The hierarchical correlation cluster mapping technique was applied to search for interrelationships and comovements among commodities, stocks from the fossil energy sector, and a wide range of global indices
The clustering outcome was visualized in the form of dendrograms and a colored correlation heat-map
Summary
The generation and availability of reliable prediction models highly depend on finding relevant key players that impact crude oil prices. Methods for clustering and visualization analysis are supposed to be an important tool to shed light on the relationships between different market factors. It is assumed that market participants being highly correlated with crude oil price movements may be vulnerable to high crude oil price fluctuations and volatility peaks. The crude oil comovers would participate in these fluctuations during highly volatile oil price episodes. Special focus was put on the correlation partners of the light crude oil benchmarks WTI and Brent. Both hold a particular position in the global market since they show a signaling effect on investors and traders
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