What are correlated stock sectors?
Although 4 of 9 sectors have a correlation of 0.93-0.94 with S&P 500, no pair of individual sectors exceeds 0.87. Utilities is by far the least correlated sector to all others….Summary.
| Ticker | Sector |
|---|---|
| XLB | Materials |
| XLK | Technology |
| XLU | Utilities |
| SPY | S&P 500 Index |
How do you find the correlation between multiple stocks?
To find the correlation between two stocks, you’ll start by finding the average price for each one. Choose a time period, then add up each stock’s daily price for that time period and divide by the number of days in the period. That’s the average price. Next, you’ll calculate a daily deviation for each stock.
Which stock sectors are negatively correlated?
Some sectors that are negatively correlated with the oil sector are aerospace, airlines, and casino gaming. The portfolio manager may look to sell a portion of his investments in the oil sector and buy stocks that are associated with the negatively correlated sectors.
Which sectors have low correlation?
XLU, the Utilities Select Sector, is moderately correlated to the Consumer Discretionary, Consumer Staples, Industrial, and Technology sectors and has a low correlation with the Energy, Financial, Health Care, and Materials sectors.
What is the ideal correlation for a portfolio?
Within a portfolio, if you can find assets that have correlations with each other of below 0.70, that would be a good starting point. If you find that many of the assets in your portfolio are correlated at a high level, say over 0.80, you may want to rethink what the portfolio holds.
What is a high correlation between two stocks?
Positive vs. Stocks can be positively correlated when they move up or down in tandem. A correlation value of 1 means two stocks have a perfect positive correlation. If one stock moves up while the other goes down, they would have a perfect negative correlation, noted by a value of -1.
Why is correlation between stocks important?
Correlation can be used to gain perspective on the overall nature of the larger market or to measure the amount of diversification among the assets in a portfolio. Choosing assets with low correlation with each other can help to reduce the risk of a portfolio.
What stocks are inversely correlated?
Airlines, trucking companies, and aerospace companies all respond poorly when the price of oil increases. When the price of fuel goes down, these stocks go up. There is also a strong negative correlation between the financial industry and industries that increase their profits when interest rates go down.
What is negatively correlated to S&P 500?
A negative correlation means that they tend to move in exactly opposite directions. For example, when returns on some asset classes were declining, returns on others were gaining, or perhaps declining less. The chart below shows the range of correlation assets to the S&P 500 index over the past 20 years.
What correlation is best for diversification?
Diversification works best when assets are uncorrelated or negatively correlated with one another, so that as some parts of the portfolio fall, others rise.
What is most negatively correlated to S&P 500?
Gold continues to have a near-zero correlation with the S&P, which means they basically move independant of each other. The U.S. dollar currently has the most negative correlation with the S&P.
Which correlation is the strongest?
The strongest correlations (r = 1.0 and r = -1.0 ) occur when data points fall exactly on a straight line. The correlation becomes weaker as the data points become more scattered. If the data points fall in a random pattern, the correlation is equal to zero.