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.
You cannot compare the same or roughly the same basket of assets against itself.
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.
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.
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.
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.
Also, roboadvisors like Wealthfront trade strategies based on negative correlations within and between market indexes.
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.
Also 80% by some metrics, much, much smaller by others.
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 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.
"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."
That's just looking at pricing. It's the same category as technical analysis.
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?