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COVID-19 Correlations: Local Cases, Local Returns?

by Derek Horstmeyer
August 10, 2022
in Investing
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That native temper impacts native inventory returns is a longstanding truism of the monetary markets. Quite a few behavioral research again this up. When a sports activities groups loses, for instance, the shares of native corporations are likely to fall as properly. Related patterns have emerged round climate and election outcomes. That’s, sunny climate in a selected market is correlated with outperformance of the corresponding shares, and equities related to specific causes or candidates do properly when elections appear to consequence of their favor.

However what has the COVID-19 period revealed about this native phenomenon? Particularly, since 2020, have COVID-19 case counts had any correlation with inventory returns in sure areas?

To check this premise, we recognized 4 sectors which are related to particular geographies. We homed in on the communications, power, expertise, and finance industries and the corresponding US areas they’re usually related to: Los Angeles, Houston, the San Francisco Bay Space, and New York Metropolis, respectively. We used exchange-traded funds (ETFs) as tough proxies for every business and area, with the Communication Providers Choose Sector SPDR Fund (XLC) standing in for Los Angeles/communications, the Vitality Choose Sector SPDR Fund (XLE) for Houston/power, the Expertise Choose Sector SPDR Fund (XLK) for the Bay Space/tech, and the Monetary Choose Sector SPDR Fund (XLF) for New York Metropolis/finance.

In every sector/area, we checked out how the case depend in that exact metropolitan space correlated with returns within the related business from February 2020 by way of February 2022. 

So, what did we discover?


Median Weekly Irregular Returns

Sector/Area Low COVID-19 Case Depend
twenty fifth Percentile and Under
Excessive COVID-19 Case Depend
seventy fifth Percentile and Above
Communications (Los Angeles, XLC) 0.0017 0.0001
Vitality (Houston, XLE) –0.0108 0.0217
Expertise (San Francisco Bay Space, XLK) 0.0046 –0.0015
Finance (New York Metropolis, XLF) –0.0006 –0.0026

Throughout the 4 areas, we didn’t determine any main distinction in irregular returns in both a excessive or low COVID-19 case month throughout the complete two years of information.

However the worst month for COVID-19 case counts was a unique story. Within the months the place COVID-19 instances have been at their highest, there was a adverse correlation between instances and returns. In different phrases, because the case counts spiked in these areas, the costs of the ETFs related to the native business fell.


Highest Case Month: Correlation between Inventory Returns and Circumstances

Communications (Los Angeles, XLC) –0.049
Vitality (Houston, XLE) –0.572
Expertise (San Francisco Bay Space, XLK) –0.050
Finance (New York Metropolis, XLF) –0.231

Our outcomes recommend that solely the worst COVID-19 months had an impact on returns in localized areas and industries. Particularly, as instances spiked in Houston, XLE costs plummeted.

In fact, correlation just isn’t causation, and the monetary efficiency of those industries and areas is hardly defined by anyone single variable. 

Nonetheless, the outcomes recommend that COVID-19 might have had an outsized impact on localized returns — however solely when the native case counts have been sufficiently excessive.

If you happen to preferred this submit, don’t overlook to subscribe to the Enterprising Investor.


All posts are the opinion of the writer. As such, they shouldn’t be construed as funding recommendation, nor do the opinions expressed essentially mirror the views of CFA Institute or the writer’s employer.

Picture credit score: ©Getty Photographs/Avalon_Studio


Skilled Studying for CFA Institute Members

CFA Institute members are empowered to self-determine and self-report skilled studying (PL) credit earned, together with content material on Enterprising Investor. Members can report credit simply utilizing their on-line PL tracker.

Derek Horstmeyer

Derek Horstmeyer is a professor at George Mason College College of Enterprise, specializing in exchange-traded fund (ETF) and mutual fund efficiency. He at present serves as Director of the brand new Monetary Planning and Wealth Administration main at George Mason and based the primary student-managed funding fund at GMU.

Luis Paz-Perez

Luis Paz-Perez is a senior at George Mason College pursuing his bachelor’s of science diploma in enterprise with a focus in finance. He’s fascinated with monetary markets, personal fairness, and consulting. He at present serves because the president of the Funding Committee for the Montano Pupil Managed Funding Fund at GMU. After commencement, he will likely be working in direction of acquiring his CFA constitution.



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Tags: CasesCorrelationsCOVID19LocalReturns
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