Show HN: Find the 10 highest and 10 lowest correlations to any stock | Hacker News Reader

Show HN: Find the 10 highest and 10 lowest correlations to any stock

betagainst.fun

217 pointsmacco143 comments

During the start of the year I was thinking how could I bet against certain stocks (in my case mainly Tesla) without using derivatives and the risks that come with them.

After I had success betting on the oil price with a highly correlated investment fond, I came to the conclusion that negative correlations could be used to bet against the price of other assets. Unfortunately, it is not easy to find correlations between assets if you don't know which assets to compare in the first place.

So I created a website where you can find the 10 highest and 10 lowest correlations of certain assets.

Open articleView on HN

Couple of random thoughts:

- Building things like this is always great. And its a fun site to poke around on.

- I would not count on this approach or expect it to be reliable in terms of actually hedging. Correlation, as a measure, has lots of issues. You are boiling down a lot of complex relationships into a single number. While it is convenient for many calculations, there are many problems. For example, many asset classes will go through periods with positive correlation and then later, negative correlation. This is due to a factor driving both securities price becoming more or less volatile compared to the other drivers. E.g., recent increased volatility around inflation expectations driving correlations between rates and equities. Whereas, few years ago, inflation was not driving anything.

- One alterative approach is to have a "risk model". Which essentially decomposes a security into drivers. Each security then represents a basket of these drivers. You can then use this model for range of purposes. While not perfect by any means, the model contains more information than a correlation. These too have a range of issues and creation and use is as much art as science.

- In general, you won't find many negative (or even very low) correlations across individual equities. Most stocks are driven by a common set shared risk factors that drive much of the risk. But if you can find negatively correlated securities (or lowly correlated), then that is certainly helpful.

tl;dr -- All trading strategies work, until they don't.

And most people blow up their account, because their trading strategies worked for a long time.

The amount of engineers that discover finance an the incredible, flawless, never-gonna-go-wrong-strategy of being short volatility and feel great about their results for a long time before blowing up their accounts never ceases to amaze me.

Speaking for a friend, of course.

Did friend forget to put loss stops when issuing orders..

Not sure about the friend, but it happens to the best of us. Somebody on Wall Street has my money.

I am trying to understand this part.

Setting stop loss for qualified trader should be like looking around when you are crossing the street on intersection.

There some people may have gambling problem, or software has bugs, but it is another story..

If I think a thing should be worth 45, and I buy it for 40, and then it goes down to 30, I'd rather buy more than sell?

I've never understood stop-loss, it seems to me that by using stop-loss, one is basically saying "I don't know what the fundamental value is and if it goes down I want to sell". Then, why buy the thing in the first place?

You long an asset because you expect to sell it at a higher price (or because it hedges against some other asset in your portfolio). You short an asset because you expect to buy it back at a lower price. Not every strategy has a strong opinion on the fundamental value of an asset (none of the strategies I run do), and even those that do, might place an offer higher than their fundamental value because they know that the other side of the market is willing to pay that higher price. Similarly, one might sell an asset below their fundamental value because they believe the price will continue to move against them in the short term.

A strategy that indiscriminately buys more of an asset as the asset price goes down only works with an infinite bankroll. Such a strategy run with a finite bankroll will necessarily blow up eventually. Rigid stop losses mostly just increase the volatility of a strategy though (which also contributes to portfolio drag). A sustainable strategy harvests volatility of the underlying (mean reversion) and/or dynamically deleverages (momentum) as the price moves against the entry.

Just because you think it's worth 45, doesn't mean everyone else agrees. You'd ideally want to stop out somewhat close to your open and reassess your trade, and maybe even reverse on a break under. I'd rather get out at 38 and look at buying in again at 30 than holding and hoping.

If you think it's worth 45, why would you "get out at 38"? And why would you think it'd go down to 30?

> why would you "get out at 38"?

because your strategy/estimation looks like not perfect in this case, and you may consider to cut your losses at 38, and not become broken if it goes down to 20.

Stanley Druckenmiller:

  I’ve never used the stop loss. Not once. It’s the dumbest concept I’ve ever heard. [If a stock goes down 15%] I’m automatically out. But I’ve also never hung onto a security if the reason I bought it has changed. That’s when you need to sell.

He is long term investor, and probably invests without strategy but by researching "the reasons".

Trading strategies is more for shorter term investors, when circumstances can change very fast while you are visiting bathroom, and induce significant losses, that's why you need stop loss to limit your risks in such cases.

Stop losses are absolutely not a given amongst professional traders.

Depending on setup they may have some risks management behind their back, which effectively does stop losses for them.

TL;DR: Correlations does not imply causation.

Having said that, if you can find a negative correlation AND there is a strong reason to believe that the negative correlation will hold as long as X and Y hold, then the tool could be very useful.

Yes, agree, correlations don't imply causation.

The TLDR is more that correlations throw a lot of information away.

How would one determine what X and Y are?

The idea is that you search for negative correlations and then you look into the two asset, if there is some relationship. For example if the price of oil goes down the stock price of Ford should go up.

The correlation is only a first indicator.

>But if you can find negatively correlated securities (or lowly correlated), then that is certainly helpful.

Is it more likely to find negatively correlated securities across industries, like the SPDR ETFs, rather than individual stocks?

Super useful!

However, I get a “504 Gateway Time-out” error for https://betagainst.fun/asset/bz__f_bno/. HN hug of death?

I suspect HN hug of death

I think so. It seems to be running a lot smoother now than it was earlier today.

Do you have an Orbi or Netgear router? The service they use to block harmful websites has list this one as harmful.

Nope; I have a TP-Link router.

"We calculate the correlations between 2 securities on the daily closing values of the last 20 years."

It's better to correlate daily returns than daily prices, since the latter are nonstationary, and I suggest using 1 year of daily returns rather than 20 since correlations do change over time. When I worked as a financial quant no one looked at 20 year correlations to measure near-term risk.

For a retail trader, the fees are higher, affording fewer trades in a given period.

As such the holding period might be on the order of 1 year for some people, so just 1 year of daily returns might invite too much trading if you're rebalancing.

Retail traders should be realizing gains within 2-3 month intervals. Retail investors will usually hold for years and do average pricing until the next market crash

"Retail traders should be realizing gains within 2-3 month intervals."

Not in taxable accounts where short term capital gains are taxed at ordinary income tax rates (or at an even higher rate in Massachusetts). It's difficult to beat index funds on a pre-tax basis. On an after-tax basis it is almost impossible with discretionary stock picking.

Random question: Would it be illegal to use insider information to trade on the result of a correlated stock that you suspect will be affected by the actual company you have information about? (I mean I get that it probably is since you're using insider information but wouldn't it be really hard to prove.) Just curious, I'm not intending on doing it myself.

Yes it is illegal, but happens nonetheless. Matt Levine wrote about this quite often, you can find it by searching „Money Stuff Shadow Trading“ for example

Yup this seems to explain it pretty well. (Though he does talk about how my mentioned scenario is a bit of a grey area, and that barely anyone seems to have gotten in trouble for it.) If anyone else is curious: https://web.archive.org/web/20220129121919/https://www.bloom...

I’ve often wondered the same thing, good on you for actually doing it.

That said, in any set of 20+ variables there will be a 10 highest/10 lowest correlating.

Without a good (specific, hard to vary) explanation as to why the correlation happens, I would not use this information to gamble real money.

It's the 10 highest and lowest SO FAR.

If you track this over time, you will see that these change (often at times when you really want them not to).

Past observances aren't super helpful in predicting fractal futures.

Would be interesting to see the differences in correlation from say 1980-2000 to 2000-2020. Of course that would exclude many of today's heavyweights.

> Step 3: Check

I can see the risk in short positions - you theoretically could lose an infinite amount (if you borrow X shares of something, sell them, but then can't find any to buy when it comes to returning them), and it's certainly possible to lose more than you put in (sell 100 short at $10 netting you $1000, price doubles overnight on new news, you have to buy $2000, losing a total of $1000 in the process. If price trippled overnight you'd lose $2000 -- more than you could have ever made even if the company went bankrupt overnight)

But put options? Surely all you can do is lose what you bet in the first place?

In principle you have the same problem if you’re selling naked put options

I think you mean selling naked call options. If you're selling put options, you are selling someone else the right to force you to purchase shares from them at a given price. Which means that you are long the shares and also that your downside is limited by the strike price.

The price of a stock can only go to zero, so the value of a put option is bounded. A put option at exercise price of $2 has a maximum value of $2 (ignoring discount rate, conditions, etcetera). There are corner cases because a stock going to zero has other implications (e.g. cannot actually trade in that stock) which can affect delivery. Matt Levine puts it nicely: “Betting on disaster is hard because, if you win, there has been a disaster, and you might not get paid.” and he writes about (under CDS heading[2]) some of the other costly risks of shorting, some of which might also apply to options.

The value of a call option is unbounded.

This link[1] has some good questions and answers about options, although it certainly isn’t complete (e.g. dividends are mentioned but voting rights are not).

[1] https://www.blackwellpublishing.com/content/kolb5thedition/c...

[2] https://news.bloombergtax.com/tax-insights-and-commentary/ma...

Both sibling comments are completely correct, and support the parent comment (thanks!).

I got myself mixed up and was misled by a Corporate Finance Institute quote (which incorrectly notes the loss is unlimited only to contradict itself):

For the seller of a put option, things are reversed. Their potential profit is limited to the premium received for writing the put. Their potential loss is unlimited – equal to the amount by which the market price is below the option strike price, times the number of options sold.

The main issue with options is the time component. Now you have to bet on the direction and be pretty precise with the when.

Also, prices for these options (Tesla is a good example) aren't cheap. For example a bet that Tesla will be below $900 by Jan 19th 2024 will cost you about $250 / share at the moment. That means Tesla needs to actually be below $650 on Jan 19th 2024 before you make 1 dollar.

As long as you understand whats going on and what you are actually betting on, you are fine. But options have lots of 'gotchas'.

The time component is always implicit in both a vanilla short position or a synthetic option-based short. It's just easier to "see" in vanilla options, because it's priced in explictly. If you don't want to pay the cost up front by using long-dated options, just buy short-dated ones and roll them. The costs are likely similar as long as you construct the synthetic short position correctly.

https://en.wikipedia.org/wiki/Put–call_parity

i.e. When you short a vanilla equity, you'll likely have transaction cost of borrowing the stock as an interest rate over time. This cost is incurred as you keep the position open. This cost is related to the cost of capital for the shares you've borrowed. Cost of capital is an implicit cost on time.

To construct a synthetic short (using options/bonds), you basically short a synthetic equity. A synthetic equity can be constructed through a long call position, short put position, and long bond position. This synthetic will mostly replicate the the stock's return. To turn it into a synthetic short, you just do the reverse, short a call, long a put, and short a bond.

You can lose way, way more than what you "bet" in the first place with options. Check out optionstrat.com to play around and see strategies and results.

If you are buying options (i.e., you have the optionality), youre downside is limited. If you are selling options, that isn't necessarily the case.

For anybody who wants maximum risk, and wants to lose money as fast as possible, and in the biggest amounts, there is always the Cryptocurrency Futures market.

A bit like Negative Chess...

What's wrong with crypto futures?

It's effectively unpredictable.

So it's gambling, same as buying shares in Tesla.

Risks...

Leverage + Interest Rate Risk + Liquidity Risk + Settlement + Delivery Risk + Operational Risk + Volatility Risks + Unregulated By Governments And/Or Central Banks + Risks of Error and Hacking + Human Error...

All together! Remember, we are trying to lose money as fast as possible...

Or you could bet everything at a casino and let it ride if you win.

But unlike selling stuff you don't have (shares, options etc), you won't lose more than your stake. You have $1k, you put it on red, you invest in the S&P, you buy Roubles, you buy a meme stock, you buy a TSLA call for 6 months time at $2k, you buy dogecoin, at most you will lose $1k.

You borrow 100 shares of TSLA when it's $900 and sell them, you'll get $90k now, but you might end up with TSLA jumping to $5k overnight and you have to send those shares back, that will cost you $500k, well done.

When you buy options you're buying exactly that, the option to make a potentially lucrative trade in the future at a price agreed now. (Bought) Puts have just as limited downside as (bought) calls.

The bigger risk comes in selling options: you sell a call and (assuming you don't already have the underlying shares) your downside is unlimited - you might have to pay sky high market prices only to sell (to the call option holder) low; you sell a put and your downside could be the entire strike price - the underlying could have gone to zero but you're forced to buy high (at the agreed price).

How does this submission have both text and a URL? When hitting submit it's shown as either/or. Does the server not enforce it?

Huh, I didn't realise that was possible either. To be fair though, it does say 'or', not 'xor'!

In casual English “or” means “xor” most of the time.

I'm not so sure about that.. it certainly can, and in a lot of contexts it would all or almost all of the time; in other contexts it doesn't.

At one point a few months ago I tried to do the same in an 'Ask HN' post (not knowing how it was supposed to work), and the text portion of my submission was accepted as a comment on the post that got buried and led to lots of confusion.

It happened more by accident. I only used the field to compose the "first" comment, but then I hit submit before cutting the text.

In many ways, compared to a vanilla short position or a synthetic short via derivatives, you are implicitly accepting higher risk to “short” via this manner. This is generally a bad idea as it’s hard enough to arbitrage the same equity on different exchanges[1]. Now imagine trying locate perfect negative substitutes for an equity…

[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=525282

I agree that this is very dubious. However, looking at the data sounds fun, if only I could get past the 50x errors :)

I highly doubt your assessment. When you have a short position, with underlying values you don't own, you have a leveraged investment. Which is inherently more risky than investments in a base value.

The idea is not to have perfect negative correlations, but to find values with some negative correlation. This way you can profit from falling prices of an asset. Not with a 1 to 1 yield, or even higher.

In equity markets, risk is measured in volatility or the standard deviation of return. By definition a short and long position of an equity has the same volatility or standard deviation of returns. You may be using the term risk colloquially, but your understanding of leverage under a short sale is also misguided. If you short a stock and have cash to cover, you don’t need leverage. If you short a stock and the position is in the black, you don’t need leverage. You only need leverage if your short position is in the net negative. Yes, you may have to pay borrowing costs for the stock, but that’s just normally known as transaction costs. Until you require leverage to keep the short position open when it’s net negative or you used the cash proceeds, you are not leveraged.

If your goal is to manage the maximum loss from a short position, it’s much easier to short the stock and buy a protective put. This gives you perfect exposure to your bet, while allowing you to manage your loss exactly.

Very cool!

Where are you getting the historical data? There's a ton of fun stuff you can do with this kind of long-horizon of data

Very cool, although index funds like S&P 500 and DJI don't seem to work.

https://betagainst.fun/asset/_gspc_spy/

https://betagainst.fun/asset/_dji_dia/

That doesn't make any sense anyway. You're asking what are the highest and lowest correlations of the market against the market itself.

You cannot compare the same or roughly the same basket of assets against itself.

That still makes sense. Something can be more or less correlated with the broader market. It's very useful, actually: you can use securities that tend to not be correlated with the broader market to build a portfolio with less average variance.

Yeah, I understand the concept, its just that regardless that people can graph it, doesn't mean that it widely has any tangible meaning other than being able to play with the numbers that come out of it.

It's a concept that fits nicely in the category of technical analysis, but not one that allows you to find any particular market insights.

If you took the whole tradable US securities market and said "what doesn't correlate with these price movements?" it doesn't mean anything.

If it did, I would ask you, "What explicitly do you _think_ this means?" Just because you get numbers in and out doesn't mean you're working with anything meaningful.

The only broadly meaningful concept you can get out of anti correlation with the market would be bonds because interest rates increasing push down the estimated future cash flows of publicly traded companies, affecting their valuations.

Everything else can be considered speculation.

> It's a concept that fits nicely in the category of technical analysis, but not one that allows you to find any particular market insights.

It's useful for hedging risk

> The only broadly meaningful concept you can get out of anti correlation with the market would be bonds because interest rates increasing push down the estimated future cash flows of publicly traded companies, affecting their valuations.

This is wrong. Consider pair trading or long/short strategies, both of which rely on estimating correlations.

The correlation of an asset to the market is the definition of 'beta' and it is not technical analysis (from investopedia):

"Beta is a measure used in fundamental analysis to determine the volatility of an asset or portfolio in relation to the overall market."

"Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts."

I know what Investopedia says, but there's nothing fundamental about beta. Beta is the "measure of how an individual asset moves (on average) when the overall stock market increases or decreases."

That's just looking at pricing. It's the same category as technical analysis.

>If you took the whole tradable US securities market and said "what doesn't correlate with these price movements?" it doesn't mean anything.

If it did, I would ask you, "What explicitly do you _think_ this means?"

Caveat: I'm an idiot and just trying to understand from a layman's perspective.

Wouldn't you be able to use this to invest when you think the market, as a whole, is overvalued?

For example, if the tool showed that a 30-year treasury bond (or similar) was negatively correlated with the S&P 500, wouldn't it suggest it was a good idea to buy bonds (or similar) when I thought the overall equity market was overheated? The idea being there are certain industry/stocks like maybe precious metals/mining that do well when the rest of the market is tanking?

Yes, it makes sense. An asset's correlation are with the broader stock market is quantifiable. See also: https://www.investopedia.com/terms/b/beta.asp

No, it doesn't. The S&P 500 basically is the market. Any meaningful difference between it and the other US investable equities is marginally notable.

It's literally asking "How do these roughly 500 plus or minus largest stocks correlate with the largely the same basket of securities?"

If you took one company and compared it against the total US market, then you have something at least. If you take the market itself and compare it against itself, it makes no sense.

> If you took one company and compared it against the total US market, then you have something at least.

This is a common metric referred to as market beta.

> If you take the market itself and compare it against itself, it makes no sense.

S&P 500 and Russell 2000 are both broad market indices, but they perform differently. Even using the same index constituents with different weightings (e.g. equal vs cap weighted) can produce meaningfully different results. It makes plenty of sense to compare them.

I don't think you understand why multiple broad market indices exist in the first place. It has nothing to do with "performance" and everything to do with licensing fees when institutional organizations want to track against the market.

No one. No one is seriously looking at the Russell 3000 and comparing it to the Wilshire 5000.

To the child comment:

I'm talking about two total market indices, apples to apples, and you're talking about apples to oranges. NASDAQ is a stock exchange, not an index.

Further still, even if you were talking about the NASDAQ composite, they're two entirely different indices. They do not have the same goals. There might be some relative meaning there.

There isn't much meaning between comparing two or more indices that have the same goals and constituents. You're only tracking the differences between constituents at that point, and you wouldn't need beta to do that. You could just calculate the difference between the constituents that are not a part of the total set.

> No one. No one is seriously looking at the Russell 3000 and comparing it to the Wilshire 5000.

People compare indices all the time to assess relative performance (e.g. Russell to NASDAQ) or HY credit to IG.

Response to edits:

> I'm talking about two total market indices, apples to apples, and you're talking about apples to oranges. NASDAQ is a stock exchange, not an index.

NASDAQ composite is one of the most commonly referenced indices. There's also NASDAQ 100, on which one of the largest ETFs in the world (QQQ) is based.

> Further still, even if you were talking about the NASDAQ composite, they're two entirely different indices. They do not have the same goals.

That's why people compare indices -- they're interested in evaluating different aspects of the market.

> There isn't much meaning between comparing two or more indices that have the same goals and constituents. You're only tracking the differences between constituents at that point, and you wouldn't need beta to do that. You could just calculate the difference between the constituents that are not a part of the total set.

Weightings? An equal weighted index will reflect increased contribution from smaller companies versus a market cap weighting (compare ETFs SPY/RSP). Same constituents, different emphasis.

Index funds have tracking error, so it absolutely makes sense to ask for the ten index funds most correlated to the S&P 500. I'd expect a Vanguard S&P 500 ETF or similar to show up in the list, along with some competitive products.

Also, roboadvisors like Wealthfront trade strategies based on negative correlations within and between market indexes.

The S&P 500 is for sure not the market. There are thousands of stocks that trade on various exchanges that are not in the S&P 500.

Reread my comment. I didn't say it was the market. I said it _basically is_ the market. See my comments about FT Wilshire and FTSE Russell.

Regrettably, I shouldn't have bothered replying at all, some HN readers think beta is a fundamental measure. It is not. Many sources get this wrong for some reason.

If you are looking at price movements, you are doing technical, not fundamental analysis.

It is also not _basically_ the market, either.

Well I guess 80% of the market isn't basically the market by your definition is it and every major institution that uses the S&P 500 as a proxy for the US market is wrong, right? OK. Sure.

Yes, 80% of the stock market isn't 100% of the stock market, that is correct...

Also 80% by some metrics, much, much smaller by others.

Nitpick: you can’t lose over 100% of your investment using a put option. You can only lose the premium.

You can lose up to 100% of premium (which makes up 100% of your investment in that option) if you BOUGHT the put option. You can lose up to Strike Price minus the premium received if you SOLD the put option.

I know next nothing about option trading, but doesn't betting against a stock have infinite loses?

Not with options. If you want to bet against a company you with options you can do it by either: 1. Buy a put. The put gives you the right to sell the stock at a certain price. If it goes below that price you make a profit, if it doesn’t your put is worthless. The maximum you can lose is what you paid for the put. 2. Sell a Call. This gives someone the right to buy the stock at a certain price (and you promise to sell at that price). If the stock is below that price your profit is what you sold the call. Your maximum loss is infinite since a stock price has no (theoretical) limit.

> > doesn't betting against a stock have infinite loses?

> Not with options.

you maybe meant to say "not when you buy options":

> 2. Sell a Call. This gives someone the right to buy the stock at a certain price (and you promise to sell at that price). If the stock is below that price your profit is what you sold the call. Your maximum loss is infinite since a stock price has no (theoretical) limit.

By this logic not buying a stock has infinite loss potential. The stock you didn't buy today might be worth anything tomorrow.

> I know next nothing about option trading, but doesn't betting against a stock have infinite loses?

the entire point of everything under discussion here is that "betting against a stock" can take multiple forms. if you'd like to pick one, google, or your interlocuters, could tell you what the maximum possible risk is.

keeping your money in cash is a form of betting against a whole lot of stocks simultaneously.

I think the point is - using options you can limit your risk to a specific amount of money. Buy a put to go short, buy a call to go long.

Is it just me or do others see a correlation between people who short Tesla, and posting on HN about investment tools that use questionable prediction models based on historical "patterns"?

These are starting to look like perpetual motion submissions to the patent office.

Well this tool does not cater for splits and dividends :-/ very misleading IMO

This is a really great idea, unfortunately also getting 504s.

This tool does not correctly handle stock splits and thus all the correlations it produces are wrong for any stock that has ever had a split or a reverse split. It shows a split as a huge price drop, but that is not really how that works, since the number of shares expands, thus anyone holding the stock does not, in fact, face a 4x loss for a 1:4 split.

Data source? Did you correct for splits and dividends? Why not use returns? Nice idea, but we’re left with so many questions.

Data source are dailys from alphavantage: https://www.alphavantage.co/documentation/#daily

Prices are not adjusted, as these are not free.

Correlation between assets change over time. Predicting what the correlation will be in the future is important for asset managers.

I am supervising a master thesis project (in fact the second such project on the matter) where we are trying to predict the covariance matrix of a portfolio of assets using machine learning. Results are promising!

This is pretty easy to do in SQL too!

https://factor.fyi/questions/top-10-aapl-correlating-stocks-...

FYI, the link in the copyright/footer is broken.

Seems like an interesting project, but so far the UX isn't great.

The searching UI for companies has no loading or success/failure indicators. A note on performance - waiting an extra second before firing the search request can help take some of the load off the server, along with cancelling requests after I change the search.

Some requests time out, and others return no results (e.g. HOOD, TLRY).

For other requests that returned results, there's no correlation (Apple).

Maybe an example page could be helpful to illustrate what the app can do?

Thanks for your feedback. I think the server was just overwhelmed.

Normally, the search works instantly. Even though, I am located in Germany and the server is located in the US.

I debounce the search for 250ms.

Cool!

Little offtopic highjacking: does it make sense to "bootstrap" correlation among stock returns (frankly, any multidimensional time series, but since we're talking about stocks) with different time periods?

Say, for any pair of stock a and b, randomly selecting a startint point and a period (N days) and using this as a better estimator for the "true" correlation instead of using all the data points? Or something like this, not this process exactly

Great project! Even more so, congrats on shipping something!

A little tip from someone who dabbles in algorithmic trading, look into cointegration as well as correlation. Also, the cross correlation matrix changes over time, you can have great fun seeing spikes and convergence/divergence as markets tend to get more or less correlated reacting to real life events.

any success algorithmically trading SPY?

Actually? Yeah. Though "kinda". I don't have a large enough sample size to determine how much is luck and how much isn't. And I'm too cheap about purchasing data. If I could give one condensed tip after a few years of experiments: "never buy a stock, sell a put. never sell a stock, sell a call". The residuals from that options premium, over time, were greater than anything else I made trying to be "more clever using math".

I'm interested in knowing how you do your correlation calculations, if there are any criteria for them (such as if a correlation is weighted against if the industries are unrelated). Also interested in your information feeds. I'm not looking to compete or do it for myself, this field just draws my playful interest and I'm curious.

I don't think the method is sound. You should look into finance literature on the topic, maybe something about diversification.

It's pretty notorious for not working.

With few exceptions, all stocks are correlated to the broad market.

https://en.wikipedia.org/wiki/Beta_(finance)

One explanation that would be popular right now is that the price of stocks can be calculated based on expected future cash flows and interest rates (e.g. think of what you'd pay for a bond that produces the same csh flow.) Since the interest rate is a factor in that calculation for all stocks, there's a correlation right there.

The exceptions tend to be sketchy. At one time it was thought that gold mining stocks would move against the market, but what I heard was that gold mining firms are badly run and if you like gold you should just buy gold.

People still do pair trading though, right?

That's kinda the opposite of what that site is advocating since in pair trading you are going long one and short the other.

https://en.wikipedia.org/wiki/Pairs_trade

The most famous pair trade was this: in the morning of a trading day you buy the stocks that performed the worst yesterday and short the ones that performed the best. Because the market reverts to the mean, this strategy made money hand over fist from the 1980s when Morgan Stanley started using it until the summer of 2007 when somebody fat fingered a button, unwinded their position during the day, and crashed everybody else who was in this trade.

The profitability of that trade went downhill long before that crash but since then it's been impossible to make money doing it. (When there's a hedge fund bubble the profitability of a trade drops gradually as more people pile into it and the market inefficiency it targets is dispelled, quite different from an equity bubble which goes up dramatically until...)

I just assumed you could use the correlations the site was suggesting to find diversions between stocks that we’d assume might revert to the mean.

Getting 429 status codes after I hit search

And I get a blank page. Maybe because I block the trackers?

I wonder if correlation is the best measure. Cointegration might be more important for this sort of trading. And might be a supplementary measure you want to add since you’re doing all the pairwise comparisons. (If I recall there is a computational shortcut that helps)

Searching “By industry” doesn’t make a lot of sense. Do you mean “within the same industry”?

Mispelling “higest” in tab.

A convenient tool. I’m restricted from trading in my employer’s stock. There are no rules about trading in a highly correlated proxy.

I changed your suggestions (and the typo). THX.

Are you also considering time lagged correlations?

To me I don't care if a certain stock is correlated by something, I would more like to know which stocks do have correlations or if there are correlations with a time lag

I was thinking the same thing. To know that ABC follows DEF by x days with 95% accuracy would be a superpower in investing.

Of course, the problem with something like this is that using it would, of course, ultimately change the market so that x→0.

That's not necessarily true, there are positively reinforcing relationships and negative ones too. So, some strategies, everyone does them and the result becomes less predictable, others, everyone does them and the result becomes more predictable. A common modern example of a positive reinforcement is people pumping meme stocks. There are strategies that the more people know about it the stronger it becomes.

Can someone explain why Microsoft has overall the strongest negative correlation with Activision/Blizzard(-0.87) on a 1 year basis. That must be related to the aquistion but I can not figure out how.

If the stocks fairly reliably went in opposite directions simultaneously I think that would cause it??

This is standard for all acquisitions.

- The acquiring company's share price drops because it often pays a premium for the target company, or incurs debt to finance the acquisition.

- The target company's short-term share price tends to rise because the shareholders only agree to the deal if the purchase price exceeds their company's current value.

See https://www.investopedia.com/ask/answers/203.asp

Maybe single day move on acquisition announcement - ATVI up quite a bit on 1/18, MSFT down that day.

As an aside, the methodology says "We calculate the correlations between 2 securities on the daily closing values of the last 20 years. If one of the two securities has not been on the market for so long, we use all available prices to calculate the correlation." - hopefully the author means daily changes, not daily values, because otherwise everything is spurious.

More here: https://quantdare.com/correlation-prices-returns/

And the answer is... Nvidia.

Cool idea, by the way. I'll have to play with this more.

Very interesting results for tesla for example. So can it make sense to buy a stock with very low correlations as "stabilisator" for example?

Cool. Not sure how useful it is considering what other commenters said, but is there anything like this for indices or currencies?

Also, typo: Higest -> Highest

I also have some currencies in the database. You can suggest other ones.

HN hug of death. I didn't see any results. Even without shorting intention, this information would be interesting!

Great site! I've been playing around with it and seeing some interesting patterns.

One small typo: Highest -> Higest on the graphs

Nice. I've been stewing on a similar idea but that finds correlations in equities with commodity futures.

Does this support all publicly listed tickers? It didn't seem to find the few I searched for.

Bet Against?

I thought the opposite of buying a single stock (Alpha) would be in service of.... Beta Gains T.

Where do you get your data from?

Wow, I was hoping for some feedback. I didn't expect to get on the HN homepage.

HN Hug of Death continues. 503 and 504 all morning. Congrats?

"any stock"? First two I tried are not available.

Can you add Gamestop?

Would be really interesting to see for GME

i have heard It correlates with AMC

It's there. (Maybe it wasn't earlier today, or the server was too bogged down?)

I want LAGGING correlation please thanks.

Betting against only wins with communism and socialism. And that's not really a win, is it?

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