what's up YouTube this is Ryan Hildreth
and today we're gonna talk about smart
investing with market correlation so
what is market correlation well in the
and the Dow 30 and how those are the
indexes the indices that track the
market using market correlation we have
companies that let's say the S&P 500 is
up 1% in a day which is a pretty big
move well there's some companies within
the S&P 500 that contribute to that move
so meaning like let's say let's use
Amazon that's a high beta company when
the S&P 500 is up 1% Amazon will be up
2% these high beta companies what it's
referred to is they're highly correlated
with the market so if there's a high
beta if your company has a high beta
it's highly correlated with the market
meaning if the market goes down 1%
Amazon will be down 1 or 2%
where is if I you know that's MP 500 is
up 1% Amazon will be up 1 or 2% but
there are some companies that have
negative beta which aren't correlated
with the market they're inversely
correlated meaning I don't know let's
say utility stock might be negatively
correlated to the market or maybe a bond
fund meaning if the sp500 is up
that's that stock or fund will be down
and vice versa if S&P 500 is down that
stock will be up or fun will be up so
using market correlation can really help
with investing because when you're
tracking the market and you're seeing
how it moves
you can you can then apply that to the
stock to your picking so if you want a
higher risk portfolio you can but maybe
by those companies that are more high
beta get a larger return but know that
your portfolio is going to be swinging
up and down more than a beta neutral
portfolio where you have a mix of high
beta stocks and negative beta stocks to
balance out the portfolio which is
called beta neutrality so some investors
that don't want it that are risk averse
they don't want to take on large amounts
of risk they invest in both types of
stocks so that when if one is up the
other will be down there for their there
the returns will be equal
they'll be neutral which depending on
your risk risk tolerance
you can choose to invest that way for me
and I like to know my companies I'm fine
taking on the risk if I know the company
is a good company they have good
fundamentals good valuations and that's
how you use market correlation I
basically I pick a good mix I pick most
of my stocks are I would say high beta
meaning that when the market is up my
stocks are up either 1 or 2 percent but
I mean that just all goes with your risk
tolerance and knowing what companies you
want to invest in but using market
correlation could definitely help you
you can go on to when you go onto Google
Finance you can look up the number of
the beta number of your stock so if the
beta is 1 that means it's highly
correlated with the market meaning like
1 for 1 the markets up 1% your stocks up
1% if the beta is 0 it's a neutral it's
what we call just neutral if the S&P 500
is up 1% your stock may or may not be up
it's neutral it doesn't depend on the
market if it's if the beta is negative
that means your stock is inversely
correlated meaning if the sp500 is up
your stock is going to be down so it's
good to know these things when investing
in knowing the level of beta your stock
has and the level of correlation your
stock has to the market which can help
your returns in the long run but if you
have any questions about this make sure
to email me at Ryan Hill drift rh at
gmail.com make sure to get back to you
thank you
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