| For those working in the finance industry, keeping | | | | to 10,000 at the beginning of October 2008. The |
| up to date with current financial services | | | | DJIA hit a closing-day low point (6,547) on March |
| education and current events are very important. | | | | 9th, 2009. |
| Financial services training can help advisors learn | | | | CORRELATION COEFFICIENTS |
| about new areas of interest and keep up with the | | | | Another topic for financial services education is |
| trends of the market. Relevant subjects such as | | | | correlation coefficients. Correlation coefficients |
| healthcare are important to keep abreast of. This | | | | measure interdependence between two (or more) |
| overview will go over some recent updates. | | | | variables. In financial services training you may |
| HEALTH CARE | | | | learn how to read these coefficients. |
| Health care is always a relevant topic for financial | | | | Over the long term, different asset categories |
| services training. Health care costs have risen at | | | | tend to have predictable relationships |
| more than twice the pace of overall inflation since | | | | (correlations). For example, U.S. Treasury prices |
| 1990, more than doubling their share of the | | | | usually move in the opposite direction of stocks |
| economy during that period. Even adjusting for | | | | because people buy Treasuries and sell stocks |
| the size of its economy and population, the U.S. | | | | when they are worried about the economy and |
| spends far more money on health care each year | | | | do the reverse as they get more optimistic. Over |
| than any other country in the world. As of 2009, | | | | short periods of time, correlation coefficients can |
| health care spending made up 15.3% of the U.S. | | | | vary wildly. |
| economy compared to an average of 8.8% for | | | | For example, from the end of July 2009 to |
| developed countries. | | | | November 2009, the U.S. dollar index and S&P |
| Under current policies, government spending on | | | | 500 were 60% inversely correlated (71% inverse |
| health care is projected by the Congressional | | | | correlation in October). However, between |
| Budget Office to rise to more than 18% of GDP | | | | January 2007 and the end of July 2009, the |
| per year over the next 75 years; since WWII, | | | | correlation was just 2% (an almost perfect |
| the U.S. government has collected tax revenue to | | | | "random correlation"). |
| finance its entire budget that has equaled an | | | | Over a recent 15-year period (1994-2008), the |
| average of 18% of GDP each year. | | | | correlation between oil prices and the S&P 500 |
| DJIA: OCTOBER 2008 TO OCTOBER 2009 As | | | | ranged from +20% to -20% (random correlation). |
| you may learn in a financial services education | | | | At extremes, the correlation was +40% to |
| course, the DJIA is a large stock market index. It | | | | -40%; in mid-June 2009, the correlation briefly hit |
| was created by Charles Dow in 1896. | | | | +75%. |
| From October 1st, 2008 through September | | | | Health care, the Dow Jones Industrial Average |
| 2009, the Dow dropped from its peak of over | | | | (DJIA), and correlation coefficients are all topics of |
| 14,000 down to 10,000 (October 2008) to its | | | | interest in financial services education. Financial |
| March 2009 low and then back up to 10,000 for | | | | services training may cover these topics in |
| the first time (October 14, 2009) since dropping | | | | greater detail. |