If you trade more than one futures instrument — or you're thinking about it — correlation is one of the most important concepts you need to understand. It affects everything from risk management to position sizing to whether you're actually diversified or just doubling down on the same bet.
I built a Futures Correlation Tool to analyze these relationships across any timeframe using years of historical data. What the data reveals might surprise you — even if you've been trading for years.
What Is Correlation and Why Should You Care?
Correlation measures how closely two instruments move together on a scale from -1.0 to +1.0. A correlation of +1.0 means two instruments move in perfect lockstep. A correlation of -1.0 means they move in exactly opposite directions. A correlation near 0 means there's no meaningful relationship at all.
If you're trading two highly correlated instruments, you might think you're diversified — but you're not. You're essentially doubling your exposure to the same move. If ES drops hard and you're also long NQ, you've got two losing positions, not a hedge.
The Equity Index Illusion: "Everything Moves Together"
Most traders assume the four major U.S. equity index futures — ES, NQ, YM, and RTY — all move together. They're partially right, but the degree of correlation varies a lot more than you'd expect.
Using 5-minute bars over six years of Regular Trading Hours (RTH) data:
| Pair | Correlation |
|---|---|
| YM / ES | 0.9385 |
| NQ / ES | 0.9320 |
| RTY / ES | 0.8225 |
| YM / RTY | 0.7993 |
| YM / NQ | 0.7992 |
| RTY / NQ | 0.7482 |
YM/ES is actually the tightest pair — not NQ/ES as many traders assume. And RTY/NQ at 0.7482 is the weakest, meaning small caps and tech-heavy large caps really do march to different drums.
But this is just the beginning. The full analysis digs into how correlation changes across timeframes, what happens when you step outside equities into crude oil, gold, and currencies, and why the bond/equity relationship is one of the most dangerous assumptions traders make.
Read the Full Analysis
The complete article covers:
- Timeframe effects — why the same pair looks different on 1-minute vs. 60-minute charts
- Cross-asset correlations — crude oil, gold, and euro vs. equities (spoiler: correlations evaporate)
- Currency pairs — the middle ground between correlated and uncorrelated
- Bonds vs. equities — the regime-dependent relationship that can turn your hedge into a liability
- Practical implications — position sizing, diversification, and what this means for prop firm traders
