Correlation Is Not Causation — How Not to Read the Data | In The Money by Zerodha

Open a free demat and trading account online at Zerodha: https://zerodha.com/open-account/?c=Z... 🎓 Join our Varsity Live Session in Hindi On ‘Basics of Commodity Trading’ with experts S. Sandeep Rao and Prateek Sharma. It's a 2-Day program covering commodities such as Gold, Silver, Crude Oil and Natural Gas. All Free! Register Here : https://bit.ly/4en7n0N ---------------------- In this episode, I explore one of the most misunderstood ideas in markets: the difference between correlation and causation — and why getting it wrong has a very real price. I'm your host, Sandeep Rao (SEBI Registered Research Analyst – INH000013059). We start with a story you won't forget: a quant from MIT who predicted the S&P 500 with 99% accuracy using butter production and sheep. The math was spotless. The logic was nonexistent. And that's exactly the point. Correlation tells you that two things move together. Causation tells you why. Markets generate enormous data — and enormous data generates endless opportunities to find patterns that look meaningful but aren't. Chapters: 0:00 – The Butter & Sheep Story 0:19 – The butter predictor 4:10 – What do the words actually mean? 8:34 – How do you prove causation? 12:14 – Two traps that cost traders money 19:27 – Where to go deeper 📖 Book Recommendations: Nerds on Wall Street → https://www.amazon.in/dp/B002D9ZL7I The Book of Why → https://www.amazon.in/dp/0141982411 Naked Statistics → https://www.amazon.in/dp/039334777X 🔗 Links Mentioned: Stupid Data Miner Tricks - https://mineracaodedados.wordpress.co... If you prefer reading, we've written a post about this episode here: https://inthemoneybyzerodha.substack.... Do check out our newsletter "Aftermarket Report" where we do a quick daily wrap-up of what happened in the markets, both in India and globally. here: https://aftermarketreport.substack.com/ Check out Varsity Live, a hands-on way to learn finance with experts. Instead of only listening, you practice in real time through activities like personal finance planning, technical charting, balance sheet analysis, and more: https://varsitylive.zerodha.com/home Disclaimer: Investments in securities are subject to market risks. Please read all related documents carefully before investing. SEBI registration does not guarantee the performance of the intermediary or assure returns to investors. The securities mentioned are for illustrative purposes only and do not constitute a recommendation. By proceeding, you acknowledge and agree that any returns shown on this platform are solely for informational purposes. They are not intended to serve as advertisements or promotional material, nor should they influence your investment decisions. Trading and investment decisions should be made at your own discretion, and it is strongly advised to consult a qualified financial advisor before acting on any information provided. Note: Some image(s) may have been created using Al, no copyright infringement is intended. About Zerodha At Zerodha, we simplify complex financial topics to empower you with the knowledge to make smarter investment choices. Whether you're just getting started or looking to sharpen your skills, we’re here to help you navigate the financial world with clarity.