TGN VS. NATGAS – Positive or negative correlation?

Did you know that while Natural Gas was falling from Jan 2009 by 76%, Transgaz was rising by 176% during the same period. This means that TGN outperformed Natural Gas by 252% in nearly 24 months. Such a divergence in performance suggests a negative correlation between Natural Gas and Transgaz. Is this negative correlation going to continue?

If we go back in history from 2008 to 2009, one can observe a positive correlation between the same assets. How is this possible? How can correlation change from positive to negative? Will the correlation between the two assets change to positive again? For us at Orpheus, like everything else, even correlation is cyclical. It gets stronger and weaker with time.

We have illustrated the Rieki pair cycle between TGN and Natural Gas. The Rieki structure has topped and suggests that it may be time for Natural Gas to outperform Transgaz. Above this the Alpha Numeric Rankings suggest that Natural Gas is the worst performer and Transgaz is the best. Since performance is cyclical, either Transgaz should fall or stagnate (underperform) and Natural Gas should move up. The Relative performance has turned lower and Transgaz has failed to move above previous resistances. This confirms our preferred negative view on TGN.

Rieki is still negative for other top indices. We continue to look lower as the year comes to a close.

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