# How does the stock market correlate with the economy?

What's the Correlation Coefficient between the Canadian and US stock and economy? Don't hesitate to discuss other stock exchanges.

On Apr 30 2020, Paul Krugman wrote Opinion | Crashing Economy, Rising Stocks: What’s Going On?

Yet stock prices, which fell in the first few weeks of the Covid-19 crisis, have made up much of those losses. They’re currently more or less back to where they were last fall, when all the talk was about how well the economy was doing. What’s going on?

Well, whenever you consider the economic implications of stock prices, you want to remember three rules. First, the stock market is not the economy. Second, the stock market is not the economy. Third, the stock market is not the economy.

That is, the relationship between stock performance — largely driven by the oscillation between greed and fear — and real economic growth has always been somewhere between loose and nonexistent. Back in the 1960s the great economist Paul Samuelson famously quipped that the market had predicted nine of the past five recessions.

I know it's $$< +1$$, because

• What exactly do you mean by "the economy"? – Giskard May 27 '20 at 16:30
• In addition to @Giskard +1 comment what do you mean by ‘US stocks’ and US stock market - US has several stock exchanges and in many of them foreign firms can list as well. Aggregating across them is daunting tasks as there are many things to control for. I would recommend rather picking some index that you consider to be representative of the US stock market – 1muflon1 May 27 '20 at 16:35
• It must be $< +1$ because all correlation coefficients are between $-1$ and $+1$, and a correlation coefficient of $+1$ would be absolutely perfect correlation, which does not happen as they measure different things (e.g. the stock market measures levels of share value while GDP measures different flows) – Henry May 27 '20 at 18:06
• @1muflon1 I wanted to leave this open for the experts. But let's pick the CRSP US Total Market Index that \$VTI is based on. – NNOX Apps May 29 '20 at 7:58