blog

Latest from the Quantamize Blog

US Tech Stock Correlation and Dispersion Favors Stock Picking Over Passive Investing

Mar 05, 2019

Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions
Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions

 

 

Source: Capital IQ
 

  • Just like US large-cap stocks, US tech stocks began 2019 with high levels of correlation following a broad market downturn in December 2018. After rallying through January 2019, correlation for US tech stocks became muted through the February trading month.
     
  • As of March 4th, 2019’s close, correlation of the Quantamize US Tech Stock Universe is calculated as 0.08, near the lowest level seen in the chart above.  
     
  • Current low levels of correlation in US tech stocks is representative of an environment that should favor individual stock pickers over passive investors.
     
  • Dispersion levels of the Quantamize US Tech Stock Universe tell a similar story to that of US large-cap stocks. After bottoming out at 9.20% on December 20th, 2018, dispersion of the Quantamize US Tech Stock Universe steadily rallied through 2019 and the metric currently sits at 16.12%. This is slightly above the average dispersion level of the Quantamize US Tech Stock Universe dating back to January 1st, 2015, which is calculated as 14.20%.
     
  • As a reminder, dispersion measures the average deviation between individual stock returns and the aggregate return of the Quantamize US Tech Stock Universe.  
     
  • Rising levels of dispersion in US tech stocks that currently sit slightly above the historical average suggest a tech environment that should favor individual stock pickers with the reward for undertaking higher levels of idiosyncratic risk higher than normal. Paired with low levels of correlation, the current environment for US tech stocks appears to support individual stock pickers over a passive indexing strategy.
     
  • Why should you care? If you are an investor considering exposure to US tech, the data previously outlined suggests a better payoff to selecting individual stocks you think are winners rather than simply buying an index like the Nasdaq 100. 

 

 

Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS
Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS