SAMT Blog
Graphical analysis of Coronavirus and financial markets
08. March 2020, by Mario V. Guffanti
Technical Analysis
Determining market trends through price analysis can be improved by using data that is not found in the financial world, but can still influence it. Since the Coronavirus diffusion trend affects the performance of the financial markets, we can analyze the daily data of contagion in the various countries using a technical indicator of relative strength.
With this type of indicator we compare two financial instruments through a relationship between their prices, to see which of the two is stronger than the other. The same indicator can be used on the daily contagion data of each country to understand how contagions are developing in China compared to the rest of the world. It is also possible to assess how contagion is developing outside of China in different countries.
For the first case it is necessary to examine the evolution of the relationship between the increase in the number of contagions in China compared to the rest of the world. Below is a graph built on a logarithmic scale using the John Hopkins University's worldwide contagion development database. We can see that until mid-February China had a number of infected people growing faster than the rest of the world. From the second half of February the situation was reversed.
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