Monday, February 1, 2010

Properly Diversifying Stock, and ETF Holdings: Correlations for January 2010 Reveal Many Interesting Combinations

With the end of the trading month, here are the updated stock, index and ETF correlations for the period December 2009 and January 2010. We post these at the end of every month.

Correlations are fundamental for stock diversification. Investors who wish to diversify should avoid either positively or negatively correlated stocks. The chart belows shows the correlations for the major general symbols that I follow. Specific sectors to follow.

(please click to enlarge)

The green and reds are those really highly correlated stocks, those pairs are to be avoided.

The best uncorrelated stocks

The pairs with the lowest correlations are:

  • SPY and FXE (Euro)
  • XLU (utilities) and UUP (dollar) and GLD
  • XLU and ECH (Chile), and FXA (Aussie dollar)
  • XLF (financials) and FXE
  • UNG (nat gas) and EWZ (Brazil)

Those are certainly many interesting and varied pairs this month.

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