Correlation Matrix for Stocks Over Five Years

Ten stocks that have been chosen for the analysis are AAPL, SBUX, MSFT, FB, AMZN, TSLA, SHSAX, GGHCX, FHEAX, and ABT. The correlation matrix for all the stocks over the past five years can be seen in Table 1. It shows how closely returns on stocks correlate with each other. There are three correlations that are higher than 0.6 (SHSAX – AMZN, GGHCX– SHSAX, and SHSAX– ABT). This means that for all three pairs, if one asset increases in value, another one increases, too. There are also correlations that are lower than 0.1 (SBUX – FB, and TSLA – FHEAX). Low correlations indicate that two stocks are perfectly decoupled. The lower the correlations between stocks, the more diversified the portfolio. Thus, high correlation coefficients may indicate that the portfolio is poorly diversified.

Table 1. Correlation Matrix for the Stocks Over the Past Five Years