Here is a perfect example of how correlation doesn’t equal causation: Cocoa prices surge on output fears over Ebola outbreak
LONDON – Cocoa soared to 3.5-year highs this week on fears the Ebola outbreak could reach Ghana and Ivory Cost, the two biggest producers of the commodity used to make chocolate.
Ghana and Ivory Coast account for 60 percent of global cocoa output, while West Africa produces 72 percent of the world’s cocoa. “If these two countries were to be seriously hit by Ebola then prices could soar—maybe double,”
Oh, really? Let’s take a closer look. It’s reasonable to assume that fears of Ebola disrupting the cocoa supply would cause prices to rise, but it never occurred to anyone that spikes in cocoa prices have occurred numerous times in history without Ebola outbreaks, and as shown below, that cocoa prices were already in a strong uptrend starting in 2013:
So maybe some psychic traders knew there would be a severe West African Ebola outbreak a year before it happened and began buying cocoa futures. But more likely there are numerous factors that cause commodity prices to rise and fall, and a correlation between rising prices and the Ebola outbreak doesn’t prove that Ebola caused prices to spike. Maybe cocoa surged because it was already in an existing uptrend and traders were buying the dip, regardless of Ebola. Cocoa surged 20% in early 2012 and there was no Ebola outbreak at the time, unless the outbreak was so bad that it killed off the media before they had a chance to report on it. That’s as stupid of a theory as attributing a spike in cocoa prices to Ebola when there are other factors.