Did you know, the correlation between Google (GOOGL) and EBay's (EBAY) stock is -81% for the period Sep 2014 - Sep 2015? That's a pretty strong negative correlation. We can say that when one rises, the other is likely to fall. And hence are they a good combination of technology stocks to have? Yes if you want to take a less risky strategy (which is typical). If you want to take a high risk strategy like a hedge fund, you'd do the opposite: short-sell Google and buy EBay or vice versa.
Below is a clusterplot that shows how the prices of the Tech Stocks (S&P 100 Index) at NASDAQ moved during the last one year (Sep 2014 to Sep 2015). Here's how you read the visual. Each cell shows the pairwise correlation between two stocks. Each cell at the intersection of 2 stocks has a value, e.g. 84, that indicates an 84% correlation between the two stocks. These are coloured green if they show a positive correlation, or red if they show a negative correlation. The cells that mirror the correlations display a trendline for the respective stocks. Hover over / Tap on the cells to compare different stocks.
Based on this, we can identify whether any stock strongly affects any other stock. Of course, these insights are indicative. To quote Edward Tufte:
“Correlation is not causation but it sure is a hint.”
With the Fed's announcement on interest rates expected soon, there's going to be a mad selling and buying spree. How prepared is the world to handle that chaos?
Bubble or not, how well do you know your investments?