Sector Correlations

Even though most of us spend a large amount of time watching the market, sometimes we focus too much attention on where we think the overall market is going and too little time on the intra-market relationships within it.  To help out in the latter, the following table highlights the correlation over the last year between different sectors of the market.

In the table, high values indicate that the two sectors being compared have a high correlation i.e., if one goes up the other usually follows (and vice versa).  Low values imply that if one sector goes up, the other is likely to go down.  For example, the sector that has had the highest correlation with the market over the last year has been Financials (0.99), while energy has the lowest correlation (0.65).  So if you think the market is going to go down, you should steer clear of financials and towards energy.

On a sector versus sector basis, we can see that tech and energy have the lowest correlation (0.40), while financials and consumer discretionary stocks move closest in tandem with one another (0.97).

Comments

[enrico]

Hi Paul,
thanks for the post and your daily work here.
Dont you find it odd that there's no negative correlation?
I mean, 0.4 (the lowest value) is not a great correlation, but its not that bad either.
Does this tell you something about what kind of market are we in or its your guess that this just about how the market behaves and have done so in the last, say, 10/15 years?