WCI
The Wildebeest Correlation Index provides a rolling correlation between LME prices and stockpiles. The plots are coloured so that negatively correlated numbers appear greener and positively correlated numbers appear redder.
Use of the WCI is based on the assumption that stockpiles can be used as a proxy for relative demand—demand relative to supply. If supply exceeds demand we expect stockpiles to rise and also expect prices to fall. In other words if a metal is trading on fundamentals we would expect price and stockpiles to be negatively correlated
Further we would expect that responses on the price side of “the equation” would be more rapid than on the supply side.
The WCI cannot be used for forecasting in the absence of price and stockpile data. For example if price and stockpiles are positively correlated we might expect some changes to eventually permeate the market. Based on our assumption that prices respond faster than supply, if price and stockpiles are positively correlated and both are falling, then we would expect an increase in price. If price and stockpiles were both rising in unison we’d expect a fall in price. Price and stockpiles can also be positively correlated when both a trading fairly flat.
