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nameeta26

Why are all major stock market indexes so correlated?

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All major stock market indices within a particular country are correlated because they hold similar stocks.  Furthermore, a country's health and wellness driven its economic, social and military policies impact its stock market indices they same way leading to correlation.

As for correlation of market indices between countries, in short, the world is getting smaller and more fluid due to digitization.  Economies across the world are more interdependent and tightly coupled.  Therefore, if something happens to one economy, other connected economies will feel the effect as well, leading to their respective stock indices moving together in the same direction.

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For international stock indices such as FTSE, DAX, etc., there is a correlation in price because it is a continuation of the trading time frame. Traces of the previous trader's time frame propagate to the next market. For example, if Germany has a large withdrawal of stocks from bonds, then less USD/EUR will be allocated to trade on US stock exchanges next. 

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There are several other factors which can correlate with the trading like interest rates, major news release etc and they can not be ignored if we wish to become a successful trader.

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On 7/26/2018 at 11:18 AM, nameeta26 said:

I want to learn more about stock market. Please help.

Correlation arises from the fact that two key drivers of market gains or falls are risk-off/risk-on sentiment. It is applicable to every asset class and every instrument inside a particular asset class. When growth prospects improves or monetary/fiscal stimulus is used risk assets start to offer better yield outlook (some equities offer higher, some lower return outlook but direction is the same) and vice versa when growth outlook deteriorates investors flee to quality or bonds. 

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