{"id":40890365,"date":"2023-07-22T19:40:03","date_gmt":"2023-07-22T14:10:03","guid":{"rendered":"https:\/\/stockviz.biz\/index.php\/?p=40890365"},"modified":"2023-07-22T19:40:03","modified_gmt":"2023-07-22T14:10:03","slug":"index-pair-wise-correlation","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2023\/07\/22\/index-pair-wise-correlation\/","title":{"rendered":"Index pair-wise Correlation"},"content":{"rendered":"\n<p>Sometimes, it feels like all stocks in an index are moving in the same direction. Very rarely is there full &#8220;chaos.&#8221; Sometimes, even when there is some dispersion, it is overshadowed by larger moves in a few index heavy-weights. To get some intuition around this, we calculated the pair-wise correlation of the NIFTY 50 constituents since 2015 across different lookbacks, bucketed the median daily correlations into quintiles and plotted them.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/index-correlation\/NIFTY%2050.correlation.quintiles.lines.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>If you do an <a rel=\"noreferrer noopener\" href=\"https:\/\/en.wikipedia.org\/wiki\/Run-length_encoding\" target=\"_blank\">rle<\/a>, you&#8217;ll get an idea about the number of consecutive days spent in each quintile. It looks like quintile 5, representing a highly correlated state, is sort of sticky.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/index-correlation\/NIFTY%2050.correlation.quintiles.violin.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>For example, if you zoom into the 20-day lookback distribution, notice how quintile 5 stands out. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/index-correlation\/NIFTY%2050.20-day.correlation.quntile-density.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>It appears that low-correlation environments are actually not that sticky. So, if you see a quintile 5 form, bet on it lasting a few days.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Sometimes, it feels like all stocks in an index are moving in the same direction. Very rarely is there full &#8220;chaos.&#8221; Sometimes, even when there is some dispersion, it is overshadowed by larger moves in a few index heavy-weights. To get some intuition around this, we calculated the pair-wise correlation of the NIFTY 50 constituents &hellip; <\/p>\n","protected":false},"author":2,"featured_media":2106273,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[954,2761],"class_list":["post-40890365","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-correlation","tag-quant","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890365","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=40890365"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890365\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2106273"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=40890365"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=40890365"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=40890365"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}