sector correlations

lalasushi said: "In your experience, which sectors have the least correlation to one another. Are there any resources that document such information? I am seeking to find sectors with the lowest correlation to one another in order to balance my portfolio and reduce overall risk."

speedy said: "Hello, You have to look at the long-term charts of sector indexes, that is the only resource you need. I like to use the dow jones microsector indexes. You will find them there (on page 4 and 5): http://www.djindexes.com/mdsidx/downloads/MicroSect_Rulebook.pdf#search='DOW%20JONES%20MICROSECTOR%20INDEXES'. You have to plot those indexes with the help of a software (metastock for instance), print them, and compare. You will see that most sectors are correlated. It is a lot like international diversification, it makes little sense when you know that most international markets move in the same direction. For good diversification, you have to invest in different financial markets. For example, the stock market, the bond market, and the gold market have a poor correlation to one another. Why don't you use ETFs? SPY would be a good ETF for the stock market, GLD another one for gold, and TLT one for bonds (I might make a mistake on this one). Anyway, if you are serious about doing the research we could help each other because I am interested in intermarket analysis."

speedy said: "One more thing, the book [U]Intermarket analysis [/U] by John Murphy might interest you."

alhamid said: "for real diversification, you also need some money in international currencies because of fluctuations"

LanceJ said: "[QUOTE=lalasushi]In your experience, which sectors have the least correlation to one another. Are there any resources that document such information? I am seeking to find sectors with the lowest correlation to one another in order to balance my portfolio and reduce overall risk.[/QUOTE] Absolutely there are... an the information you seek is valuable indeed... many charge for it... Here's a free graphic that's pretty helpful. Back when the tech bubble happened, I wanted to know the next sector that would boom, and sure enough it was Real Estate (REITs were a great place to be). The wheel predicts the next boom to occur in Health Care which I think is a good sector to be in. You'll notice in the graphic that you take the opposites on the wheel to find the sectors with the lowest correlation to one another. That is Technology in the stock market does poor when Real Estate is booming and vice-versa. Technology and Real Estate have the lowest correlation to one another (opposites). [CENTER] [IMG]http://www.investors-routemap.com/images/sectors.gif[/IMG][/CENTER]"

speedy said: "LanceJ, What you have shown us is extremely interesting. As soon as I have the time I will test it on charts. If you have any other resources of this kind or if you know where to find them, don't hesitate to share. Thanks."

LanceJ said: "[QUOTE=speedy]LanceJ, What you have shown us is extremely interesting. As soon as I have the time I will test it on charts. If you have any other resources of this kind or if you know where to find them, don't hesitate to share. Thanks.[/QUOTE] Yes, it is valuable indeed, but I have so many resources and so much knowledge from my years of trading that I couldn't possibly fulfill your request "If you have any other resources of this kind or if you know where to find them, don't hesitate to share"... Better, if you have a question, and if I have an answer, and if I happen to click on your message thread and read your question, I may post something that may or may not be helpful to you. The answer, is in the questions. It's the questions that drive us. Like the question "A Case for Sector Rotation"? Are we experiencing sector rotation currently? See new msg thread."