My Investing Journey with Passive Income, Stocks, and Cryptocurrencies!

Category: Consumer Staples Page 1 of 4

Correlations in my Portfolio

I decided to do a correlation analysis on my ENTIRE PORTFOLIO of stocks (and some ETF’s). In case you don’t already know CORRELATION measures the possible relationship between two items, in this case their price movements. Keep in mind, correlation isn’t causation and there could be a 3rd (or even more variables) that are influencing these movements.

Also, note, CORRELATION changes over time, it doesn’t stay the same from one week to the next, or in the case of extremely volatile markets, correlations may diverge quickly. In addition, correlation doesn’t tell you anything about the magnitude at which one stock would follow another. Just because one stock goes up 20%, the other will not necessarily follow.

I took the Year to Data data from finance.yahoo and exported into Google Sheets. I then ran correlations using FUNCTIONS, putting the values into the TABLE shown below.

Here is a link to the pdf

Stocks with NO CORRELATION to other stocks

The first thing I noticed was there are some stocks that share no strong correlation with other stocks. Namely, Marten Transportation, Allison Transmissions, Teradyne, Mindmed, and Virgin Galactic. Honestly, I expected Mindmed to be disconnected due to the small size of the stock and the extreme volatile nature of price action. Likewise, Virgin Galactic is similar in behavior, being a company that has yet to generate any revenues, profits, and is a high beta stock. What are the surprises? I fully expected Marten would be somewhat correlated to the Russell 2000, companies of similar market cap, or SAIA (another trucking stock I own). However, this turns out not to be the case. Teradyne is another surprise; I wrongfully assumed this stock would have correlation with other tech stocks in my portfolio. It shows no strong correlation with any other stock in my portfolio.

Are any stocks correlated with TLT?

Seeing as how TLT is one of the few things with a history of negative correlation with the stock market, I was interested to see if anything might follow TLT closely?

One of the most interesting things in the data set is how Chewy shares the most correlation with TLT, a value of .690, Gold is the 2nd highest at .490.

A possible explanation? Last year, Chewy was seen as a stay at home stock, safer from the pandemic exposure. Since the beginning of the year and the opening up trade, Chewy has slid a bit. It appears, there is a small directional movement with TLT, acting as a FEAR trade. This is the only possible explanation I can offer.

On the other hand, look at my REGIONAL BANK, Citizen’s Financial Group; it shows a negative correlation of -.765. One plausible explanation-as yields drop, the price of TLT increases, and Bank stocks inversely drop. It’s assumed banks make more money if interest rates are higher. One might infer that TLT and CFG (or another regional bank stock) may act as a hedge on the other. I know some people like to dabble in trading pairs and this evidence could be promising to do that (outside of my realm).

What about INTERNATIONAL EXPOSURE?

IPAC is the only pure international play I have in my portfolio; exposure mostly to Japan and Australia. .646 with ITOT or the Total Stock Market ETF, .786 with IWM (Russell 2000). This does show that this particular ETF is not as correlated as it has been in the past, so, offering another layer of diversification with the Broad Market.

UBER AND PINTEREST

Uber and Pins seem to be in their own world, the only stocks with somewhat closer correlation with one another. Both big growth stocks, both more speculative and volatile.

Netflix seems to be in a class by itself as well, while it does share some relationship with PINS (.755), it shows no signs of strong correlation with anything.

Gold?

Gold (IAU) and Kirkland Lake (Gold Miner) are closely correlated at .911 as expected. IAU is not closely correlated to the Broader market or The Russell 2000 Index. On the other hand, I did notice there seems to be a somewhat negative correlation to the HOSPITALITY industry. -.656 with Hyatt, -.573 with Ryman Hospitality Properties, -.401 with Xenia Hotels. I currently don’t have much of an answer why gold and the hospitality industry would be negatively correlated. I am not seeing any correlation between inflation fears and gold price at the moment, so it must be something other than inflation/price worries. However, with this data, trading pairs of IAU and a hotel stock might be something someone could play around with? Looking back over the data, I do notice that TLT and the hospitality sector seems to have a very negative correlation as well. Perhaps we are back to the opening up trade again, things like Gold and TLT represent FEAR and the hospitality industry represents SAFE, so they are trading opposite at the moment.

OIL?

I was quite anxious to see if my XLE, oil/energy ETF would have strong correlation with anything other than the broad market. The findings:

The strongest correlation is with my bank stock. Once again, maybe oil and the bank stock are moving in tandem due to interest rate and inflation concerns? I expected it to be correlated somewhat with Eastman Chemicals (.885) as it is an industrial as well.

CLOSING THOUGHTS

This was a fun project. I learned some things I didn’t know about my portfolio, such as correlations existing that I wouldn’t have thought existed. Part of the reason I did this is because I still want to trim my portfolio down. If I have a bunch of correlated stocks, one of them might make a good prospect for being cut from the portfolio. In the future I plan to do a shorter time span correlation analysis to see how the numbers are changing in the last month. We must keep in mind Correlation is not a static number, it changes day to day, environment to environment. Once again, it says nothing about the magnitude of gains or losses. So new data must be taken in and changes made from there.

HUGE Winner-Stanley Black & Decker

I was recommending Stanley Black & Decker as THE stock to buy back in March. I was literally buying it every other day as extra money came in.

You can see the screenshot from my IRA account below. I am up over 42% total in less than three months. One tranche is up over 95%, talk about crazy.

This is why, when the fear is high and the market is crashing, real wealth can be created during that time. The sky was falling, people were all yelling don’t buy, sit on the side lines. Meanwhile, SWK was at 5 yr lows, it was a DIVIDEND ARISTOCRAT, and most importantly, my time horizon was long. It was an opportunity I couldn’t pass up.

I knew SWK was going to be a winner, but I never thought it would be the top performing stock of this quarter for me.

I think the stock STILL has legs to run, so I’ll probably add a little more to top it off.

May Passive Income Report

So, I’m STARTING to concentrate more on my passive income besides Dividends. More income equals more money to invest. I need to get the cash flow coming in more and more so I can invest it and compound it even faster.

I’m gradually finding out what works for me and what doesn’t work. This lets me know where to funnel my energy, so it pays off the most.

Right now, the biggest winner for me is Patreon. While it certainly isn’t 100% passive (I have to upload content), once it is up, it is up and it generates income.

Probably my biggest loser is Amazon Affiliate. I don’t really do too many reviews and I only have the links under my music videos and a few places on my music website. However, I would think after over a 100 clicks I could generate SOME income from it. Apparently not so.


Here is the breakdown of May’s PASSIVE INCOME

Amazon Affiliate- $0

Patreon – $67

Skillshare- $25

Teachable $7.48

Digital Products- $0

Dividends- $82.50

Adsense- $5. 27

TOTAL PASSIVE INCOME FOR THE MONTH OF MAY WAS $187.64


I am SERIOUSLY surprised I sold ZERO digital products in May. I’m not sure what happened. At the same time, I recently converted my main site over to https and that caused it to take a traffic hit via google. June is only a week old at this point and I’ve already made digital product sales, lol.

Patreon continues to be the outperforming. I’m gaining supporters each and every week and my goal is to get up to that $100 mark.

Skillshare is a nice platform if you are just getting started. I haven’t updated it in half a year because I’m not a HUGE fan of the platform’s payment method. Also, consider me IRKED that they cancelled one of my courses without notifying me one time. So yeah, I’ll take the money but I am not being active on Skillshare any more.

Teachable is simply from instructional video sales. I believe this is on a one month lagging payroll so this is probably from April technically. Since concentrating on Patreon I haven’t really updated my Teachable either. I plan on turning my Teachable into a membership access site just like patreon. I think I will have better results that way, rather than pay per video.

Adsense-I once again think Adsense was negatively affected from the https switch on my site. Also, google has decided you can no longer choose your fill rate, it does it automatically. We will see how this affects my ad revenue. I’ve heard many people’s ad revenues are down. Basically my expectation here is a base level of $10 a month at the moment; that is “normal” for me.

My GROWTH stocks are destroying my DIVIDEND stocks!!

Here is my latest youtube video where I detail how my GROWTH stocks are killing my DIVIDEND stocks. How are your dividend stocks fairing in this Coronavirus Correction? I’ve had THREE Dividend cuts and that sure hasn’t helped things

My top performers continue to be Fortinet, Netflix, and General Mills.

I am up over 30% in each of these. I’m up almost 40% in Fortinet in a super short time (only 2 months!). General Mills I’m up in because I bought it starting Christmas Eve of 2018 and by the time I count the dividends I’ve gotten, my total return is over 40% on this stock. Netflix continues to outperform; I just hope that price appreciation continues.

In this video, I also detail why I am buying ITOT and QQQ over NOBL and DGRO. In summary, a basic Total Market ETF outperformed ETF’s that focused specifically on Dividends. Focusing on dividends led to increased risks and a weaker performance. One line often touted by Dividend investors is “Dividend Investing performs better during bear markets, it is safer.” However, what this correction is proving is that it is NOT necessarily safer. Currently over 33 companies have cut their dividend. Imagine relying on that dividend during retirement? Not good!

I am continuing to buy QQQ and ITOT a little bit each week. I also plan on increasing positions in Marten Transports, Chewy, Eaton Vance, and perhaps Mcgrath Rentcorp. I think these stocks still present incredible growth opportunities and I’m thinking LONG-TERM here.

As usual, I will repeat the old mantra, timing the market is difficult. I think there is nothing wrong with sitting on the sidelines for a bit, but I want to get that money working for me as quick as possible.

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