[scarmig]

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.

[andrewmcwatters]

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.

[JackFr]

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."

[andrewmcwatters]

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.

[bumby]

>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?

[nickles]

> 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.