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

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

#61

Post by JackFr »

andrewmcwatters wrote: post #52
scarmig wrote: post #37

Earlier quoted context omitted.

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 co…

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."

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

#63

Post by hedora »

andrewmcwatters wrote: post #54
greatwave1 wrote: post #41

Earlier quoted context omitted.

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 a…

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.

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

#64

Post by andrewmcwatters »

JackFr wrote: post #61
andrewmcwatters wrote: post #52

Earlier quoted context omitted.

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 co…

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.

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

#65

Post by Bostonian »

nurettin wrote: post #36
danuker wrote: post #25

Earlier quoted context omitted.

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.

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

#66

Post by andrewmcwatters »

nickles wrote: post #56
andrewmcwatters wrote: post #54

Earlier quoted context omitted.

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 a…

> 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)…

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.

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

#70

Post by snake_doc »

mox1 wrote: post #34
iso1631 wrote: post #19

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 o…

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 unde…

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.

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