Who will win the Super Bowl? According to a report by Risesmart, the city with the lowest unemployment rate has won the game 74% of the time. Since the unemployment rate in Denver is currently the lowest in 15 years, and the last time Denver won the Super Bowl 17 years ago its jobless rate stood at 2.9%, it looks like we have our winner.
Of course this report comes as really bad news for investors based on the Super Bowl Indicator which states that if an AFC team wins the big game, the stock market will be down for the year. This predictor is 81% accurate so it looks like by the end of the game today, Denver fans will be celebrating while investors will be mourning.
The challenge of statistics in a world full of numbers is to distinguish between those that have value and those that do not. As is often stated by statisticians, correlation does not equal causation. Just because two things happen at the same time does not mean that one caused the other. I was looking at a graph showing a direct correlation between the divorce rate in the state of Maine, and the national consumption of margarine.
It seems that the more margarine we eat, the more people get divorced. Some might argue that margarine versus butter consumption is directly related to family income. It could then be surmised that an increase in margarine use correlates to deteriorating family finances, which could actually increase divorce rates. Hmm, we may have something here.
Moving on to my next graph I see a direct correlation between the number of people who drowned in swimming pools with the number of films Nicholas Cage appeared in that year. Are his films really that bad?
Wall Street analysts often use statistics to prove relationships. Some can be pretty impressive while others seem questionable. Take for example the current market conditions that have the price of oil and the U.S. stock markets moving in almost lockstep. As a result, we are hearing experts pointing to the correlation and blaming one on the other. Some are saying that if you want to know where the stock market is going, follow oil. The problem is that this correlation is only a new phenomenon. I have reviewed the numbers and can find no historical evidence for a true correlation between the two. In this situation I usually remind people that stock and oil prices will continue to be correlated, until they aren’t.
Statistics, graphs and predictors are wonderful tools, but like all tools, need to be used by a skilled craftsman. My favorite college course was statistics, largely because it taught me to always question what those graphs were trying to tell me.
As for the Super Bowl Indicator, I suppose it will accurately predict the stock market, until it doesn’t. And the city with the lowest unemployment rate will win the super bowl, until they don’t. But just to be safe – go Carolina. Sorry people, but clients before football.
Hi, I'm Dan. I'm a CFP® Professional.
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