Latest from the Quantamize Blog

How do Stocks in the new S&P Communication Services Sector Cluster together? An AI Perspective

Sep 28, 2018

  • Facebook and Alphabet make up 44% of the Communication Services Sector SPDR ETF's (XLC) total holdings 
  • We conducted an analysis of how correlations between S&P 500 stocks in the ETF cluster using an AI technique called Affinity Propagation  
  • The study was conducted on a time series stretching back ONLY to the beginning of CY2018. 
  • The core difference between the graph and table below is that the graph visualizes conditional relations between stocks while the table measures marginal properties of the different stocks -- both use the same AI clustering technique
  • If stocks are clustered together, investors can assume they may substitute their individual stocks to reflect their impact on the broader XLC ETF. 
  • It is fascinating to see Netflix “cluster” more with Electronic Arts, Activision and Take-Two Interactive than Facebook. 
  • Shocked that Discovery does cluster with other major media content companies like CBS, Walt Disney, Twenty-First Century Fox, and News Corp. 
  • From purely a  portfolio diversification perspective, the XLC ETF looks to be very well diversified.

Visual Representation of How Stocks in S&P 500 Communication Services Sector Cluster Together

Different Clusters Using 6-Neighbors
Cluster 1 Charter Communications Inc, Comcast Corp, DISH Network Corp
Cluster 2 CBS Corp, Walt Disney Co, Twenty-First Century Fox Inc
Cluster 3 Cluster 3: Activision Blizzard Inc, Electronic Arts Inc, Facebook Inc, Alphabet Inc, Netflix Inc, News Corp, TripAdvisor Inc, Take-Two Interactive Software, Twitter Inc
Cluster 4 Discovery Inc, Interpublic Group of Cos Inc/T, Omnicom Group Inc, Viacom Inc
Cluster 5 CenturyLink Inc, AT&T Inc, Verizon Communications Inc