FTSE as an indictor

[wasp]

I don't trade shares as a rule but I've been watching BAE systems as a friend works for them and curiosity got the better of me.

Anyhow, I have been watching BAE and the FTSE together and just playing around with small amounts using the FTSE to decide on direction. Only been looking for a few points here and there but have found that a high % of the time, the FTSE moves off and BAE follows. I've not checked this against anything else yet but was curious to whether anyone noticed / uses this?

I realise its meant to be the other way round but since BAE is that much smaller than the larger companies in the FTSE, when they move a decent amount and the FTSE goes, these smaller ones lag behind but do seem to follow suit as it were.

Is it me or is this all a tad obvious?!

 

[kevinmcm]

Anyhow, I have been watching BAE and the FTSE together and just playing around with small amounts using the FTSE to decide on direction. Only been looking for a few points here and there but have found that a high % of the time, the FTSE moves off and BAE follows. I've not checked this against anything else yet but was curious to whether anyone noticed / uses this?

Is it me or is this all a tad obvious?!

Some shares do track the index closer than others. They have a beta value which indicates a correlation between the two. High beta value stocks in theory will track the index more closely. So if for example the beta value of BAE is 2 it means that for a 1% move up/down in the index, BAE should move approx 2%. Yahoo have them all isted but you need to go into each stocks technical details and look for the beta value. DOnt think there is a page which lists them al lin one place.

Kevin.

 

[wasp]

Thats intersting to hear, I thought I was seeing things!

I shall take a look into this. Do you (or anyone) use this as an indication at all?

 

[kevinmcm]

Thats intersting to hear, I thought I was seeing things!

I shall take a look into this. Do you (or anyone) use this as an indication at all?

Personally, no I dont use beta values when planning a buy/sell.

Just had a look at the stock v. FTSE, if you go to the Yahoo site you can add the FTSE index as a comparison on the same chart. EPIC to add is ^FTSE. Over last year or so they are quite closely linked, but do the same for a 2 or 5 year chart and you will see it is not always the case.

Kevin.

 

[wasp]

Cheers Kevin,

Its intersting to see the correlation as its not something I've ever looked at before.

I don't think it would make for reliable direction indications but it definately seems worthwhile to keep an eye on as an extra in the arsenal.

Chris