Inter-asset Correlation is one of primary metrics for maintaining a good portfolio.
Loosely defined, correlation is a metric which tells you how much an asset price varies vis a vis another asset. The metric varies from -1 to +1.
-1 means perfect negative correlation (an asset always goes down when corresponding asset goes up)
+1 means perfect positive correlation (an asset always goes up when corresponding asset goes up)
0 means no correlation (an asset doesn’t move much whether the corresponding asset goes up or down)
For your portfolio this is important because you don’t want the entire portfolio to go down together. If there are a zero or negative correlated assets in your portfolio, it gives you an opportunity to rebalance (sell the expensive partly, to buy the cheap).
There are many different schemes for rebalancing, but that’s for another time.
In this post you’ll find inter-sector correlation in the Nifty universe.
NSE publishes the OHLC data of multiple stock baskets (Index data) daily. Using that, you can get a glimpse of how various sectors are performing between each other and overall to the headline index. However, inferring anything out of the mass of numbers (even just correlation coefficients), melts the human brain.
A graphical method of representation is easier to view at a glance – Corrplot.
One primary criticism of correlation based analysis of stock data is that these are usually temporary (past correlation doesn’t tell anything about the future correlation). And that’s true for most indicators which rely on past data without any causal inferencing.
However, viewed as a trend (for example, 20, 50 and 100 day correlations), valuable insights can be gained. The corrplots being presented below will be updated daily with an at a glance view of 20D, 50D and 100D correlations.
This will mainly be useful for qualitative understanding of trends within the market. For example, when Nifty is in an uptrend, which sectors are contributing to its growth or, growing along with it? How was the relationship within the last month, last quarter, or last 6 months?
Take a moment to understand the gravity of such information and its effect on your portfolio dynamics.
Hope you find it useful. If you wish to view it daily, please bookmark the page by pressing Ctrl+D.
20 Day CorrPlot
50 Day CorrPlot
100 Day CorrPlot