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Can You Build a Diversified Portfolio with ONLY Consumer Discretionary Stocks? We Take a Look

Jun 12, 2019

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

 

  • You know we love consumer stocks here at Quantamize!  Today, we take a look at how the largest consumer discretionary stocks cluster together to get a feel for implied correlations.
     
  • A major takeaway for the non-AI Quant should be that it is a false assumption that consumer discretionary stocks move together.
  • This is a graphic visualization of linear and non-linear price relationships between the different large-cap consumer discretionary stocks in the Russell 1000.
     
  • Not a shock to see the DIY retailers clustering together, though it is interesting that Genuine Parts (GPC) clusters with Home Depot (HD) and Lowe’s (LOW) rather than some of the other auto retailers
  • Just an interesting side note, GPC has a 2-year correlation of 0.48 with HD and a 2-year correlation of 0.49 with AutoZone (AZO)
     
  • It is fascinating to see Amazon.com (AMZN) and eBay (EBAY) cluster with the gambling stocks rather than other retailers like Best Buy (BBY) that have large eCommerce businesses
     
  • What is the takeaway here? You can build a diversified portfolio of stocks EVEN if you ONLY focus on consumer discretionary stocks
  • Who would have thought that you can have a concentrated position in Amazon.com (AMZN) and Best Buy (BBY) and still claim to be diversified?!

 

Affinity Propagation Clustering of Russell 1000 Consumer Discretionary Stocks

Affinity Propagation Clustering of Russell 1000 Consumer Discretionary Stocks

Cluster Tickers in Cluster
Cluster 1 'ARMK',
Cluster 2  'DHI', 'LEN', 'NVR', 'PHM', 'TOL',
Cluster 3  'DPZ',
Cluster 4  'BKNG', 'EXPE', 'QRTE.A',
Cluster 5  'FTDR',  
Cluster 6  'BC', 'FND', 'F', 'GTX', 'GM', 'LKQ', 'MHK', 'POOL', 'TSLA', 'GT', 'W',
Cluster 7  'GHC',
Cluster 8  'LOPE',
Cluster 9  'BFAM', 'CHH', 'HLT', 'H', 'MAR', 'SCI', 'SBUX', 
Cluster 10  'ADNT', 'APTV', 'BWA', 'CMG', 'LEA', 'PII', 'VC',
Cluster 11  'HOG', 'LEG', 'NKE', 'SKX', 'TPX', 'WHR',
Cluster 12  'GPC', 'LOW', 'HD',
Cluster 13  'HAS', 'MAT', 'NWL',
Cluster 14  'DRI', 'DNKN', 'MCD', 'WEN', 'YUM',
Cluster 15  'BBY', 'CPRI', 'DKS', 'KSS', 'LB', 'M', 'JWN', 'TGT', 'GPS', 'MIK', 'TIF', 'WSM',
Cluster 16  'AAP', 'AZO', 'ORLY',
Cluster 17  'AN', 'KMX', 'GNTX', 'PAG',
Cluster 18  'CRI', 'COLM', 'HRB', 'PVH', 'RL', 'TPR', 'THO', 'UAA', 'VFC', 'YUMC',
Cluster 19  'BURL', 'DG', 'DLTR', 'FL', 'LULU', 'ROST', 'TJX', 'TSCO', 'ULTA', 'URBN',
Cluster 20  'CCL', 'STAY', 'GRMN', 'GRUB', 'NCLH', 'RCL',
Cluster 21  'SERV',
Cluster 22  'SIX'
Cluster 23  'HBI', 'HGV', 'MTN', 'WYND', 'WH',
Cluster 24  'AMZN', 'CZR', 'EBAY', 'IGT', 'LVS', 'MGM', 'WYNN'

 

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