15 Of The Most Spurious Correlations In The Stock Market

swedish twins runnersSweden’s Susanna and Jenny Kallur, champion twin runners, are very highly correlated.

Photo: Michael Steele / Getty Images

The most important metric to consider when diversifying your portfolio is correlation. Adding assets with low correlation helps to reduce volatility.Generally, there is some economic rationale that explains why assets may or may not be highly correlated.

But sometimes it just seems to be a coincidence.

We recently played around with our new favourite widget – Select Sector SPDRs’ Correlation Tracker.  We ran a couple of popular stocks through the tool to see what other market traded assets exhibitied high correlation.

You would probably be ill-advised to make investment decisions based on these findings.

General Motors and Water

Tickers: GM, PIO

Correlation coefficient: 0.97

Period: One year

Comments: PowerShares' PIO index tracks firms that create products designed to conserve and purify water for homes, businesses and industries.

Source: Select Sector SPDRs

Citigroup and Superior Industries International

Tickers: C, SUP

Correlation coefficient: 0.97

Period: One year

Comments: California-based Superior Industries International supplies cast aluminium wheels to automobile and light truck manufacturers.

Source: Select Sector SPDRs

Bank of America and Advantest Corp.

Tickers: BAC, ATE

Correlation coefficient: 0.95

Period: Three years

Comments: Japan-based Advantest Corp. manufactures semiconductors

Source: Select Sector SPDRs

Disney and the U.S. Industrial Sector

Tickers: DIS, XLI

Correlation coefficient: 0.96

Period: One year

Comments: SPDR'S XLI Industrial Sector index tracks building products, construction and engineering, electrical equipment, and logistics, among others.

Source: Select Sector SPDRs

Coke and Companhia Paranaense de Energia

Tickers: COKE, ELP

Correlation coefficient: 0.96

Period: One year

Comments: Companhia Paranaense de Energia supplies energy in Brazil's southern state of Parana.

Source: Select Sector SPDRs

Verizon and Chesapeake Utilities

Tickers: VZ, CPK

Correlation coefficient: 0.96

Period: Three years

Comments: Chesapeake is the second-largest producer of natural gas in the U.S.

Source: Select Sector SPDRs

Amazon and Waste Connections Inc.

Tickers: AMZN, WCN

Correlation coefficient: 0.96

Period: Three years

Comments: California-based Waste Connections Inc. provides waste management services in the western and southern U.S.

Source: Select Sector SPDRs

Ford and Timber

Tickers: F, WOOD

Correlation coefficient: 0.97

Period: One year

Comments: iShares Global Timber & Forestry Index tracks companies engaged in the ownership, management or upstream supply chain of forests and timberlands.

Source: Select Sector SPDRs

Boeing and Medtronic

Tickers: BA, MDT

Correlation coefficient: 0.95

Period: One year

Comments: Medtronic manufactures and sells device-based medical treatments (like defibrillators) worldwide.

Source: Select Sector SPDRs

Yum! Brands and Western Energy Partners

Tickers: YUM, WES

Correlation coefficient: 0.97

Period: Three years

Comments: Texas-based Western Energy processes natural gas products for Anadarko Petroleum.

Source: Select Sector SPDRs

McDonald's and Southern Co.

Tickers: MCD, SO

Correlation coefficient: 0.98

Period: Three years

Comments: Southern provides electric service in four Southeastern states.

Source: Select Sector SPDRs

Microsoft and Asbury Automotive Group

Tickers: MSFT, ABG

Correlation coefficient: 0.95

Period: One year

Comments: Atlanta-based is the country's sixth-largest auto dealer operator.

Source: Select Sector SPDRs

Nike and Triumph Group Inc.

Tickers: NKE, TGI

Correlation coefficient: 0.99

Period: Three years

Comments: Pennsylvania-based Triumph manufactures complex parts for aeroplanes.

Source: Select Sector SPDRs

Abercrombie & Fitch and Shutterfly

Tickers: ANF, SFLY

Correlation coefficient: 0.95

Period: Three years

Comments: Shutterfly allows users to create web-based photo books, personalised photo cards & stationery.

Source: Select Sector SPDRs

Viacom and Food

Tickers: VIA and PBJ

Correlation coefficient: 0.98

Period: Three years

Comments: PowerShares' Dynamic Food and Beverage index tracks major food processors like Kraft and McDonald's.

Source: Select Sector SPDRs

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