I really enjoy finding weird, unusual, and obscure correlations relating to the stock market. If you have read many of my previous articles, you would discover that I have written about the inverse correlation between chocolate chip cookies and the stock market, a direct correlation between the price of Apple stock and the Mac World Expo, and between beer and the stock market.
Now I have found a new correlation, between Kellogg's Corn Flakes and the Dow Jones Industrial Average. There is a great website called foodtimeline.orp, which has a very extensive list of historical prices of various food items. I chose corn flakes for my initial research. Much to my surprise, these was an 87% correlation between this ever popular cereal and the Dow. Anything between 50% and 100%, or 0.50 and 1.00 is considered significant.
So what is a correlation? There are actually the three C's of correlation, The first C is for, obviously, correlation. The second C is coincidence, and the third C is causation. Correlation means that there is a significant linear relationship between two variables. Coincidence means that there is a concurrence of events but know causal connection. Causation means one event causes the other. Remember, correlation does not imply causation.
By the way, if you like to read more about correlation, you should definitely read Freakonomics, SuperFreakonomics, and Think Like a Freak, by Steven D. Levitt and Stephen J. Dubner.
So let's look at corn flakes. Apparently, there is a correlation between the price of a standard size of Kellogg's corn flakes and the stock market. So did an increase in the price of a box of cereal cause the stock market to go up, or did an increase in the stock market cause Kellogg (K) to raise the price of corn flakes figuring that consumers are doing well during bull markets and would be willing to pay more? Maybe there is an external factor, like inflation, causing them to move similarly. Or maybe there is no causation at all. What do you think?