Introductory statistics and econometrics teach us that correlation does not imply causation. When predicting models on abstract data, however, it is sometimes easy to lose sight of this fact. The Financial Time’s Alphaville blog recently had an excellent post that illustrates this concept:
Just as correlation does not imply causation, this post should not imply usefulness. Consider it a bit of light frippery at the end of a rather challenging week for symmetrical trading.
Here’s how it works. We’ve drawn the graphs of a few securities into Google Correlate, which finds search terms whose popularity matches the given trend over time. It is, in short, an automatic logical fallacy generator.
For example, the S&P 500 since 2003 correlates best to searches for “Asian diner”.