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

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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....

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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.