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Finding correlated ETFs
Old 04-26-2020, 10:27 AM   #1
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Finding correlated ETFs

Does anyone know of a good tool that can help find an optionable stock/ETF with a high correlation to another stock?

For example, if i wanted to hedge exposure to Stock A by buying puts on Stock or ETF B?
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Old 04-27-2020, 09:26 AM   #2
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Why would you not simply hedge by buying puts on Stock A itself ?
Is this due to some income tax rule (I'm guessing, but would like to know).

I can see, that whatever stock B is, would only be an approximate hedge, even if in same industry, example: MSFT hedged by APPL, or IBM, or Google , none are perfect.
CAT vs DE or would it be CAT vs Kobota ?
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Old 04-27-2020, 12:04 PM   #3
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I have restrictions on my ability to put hedges on security A.

I don't have any restriction on my ability to conduct trades elsewhere in the market.

Agree that companies in the same industry are likely suspects to become "B"...but the companies involved are very complicated so its hard to find an analog.

I've got one that has an 80% correlation. Good but not great.
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Old 04-27-2020, 12:40 PM   #4
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... I've got one that has an 80% correlation. Good but not great.
From a mathematical point of view that's quite good. It would seem to be primary, though, that stock A is a good investment and as a rule stock picking is a losing game even for professionals. YMMV of course.

Possibly one of the companies that resells CRSP data would offer the tool or tools that you want: Data Access Tools | CRSP - The Center for Research in Security Prices
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Old 04-27-2020, 01:28 PM   #5
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From a mathematical point of view that's quite good. It would seem to be primary, though, that stock A is a good investment and as a rule stock picking is a losing game even for professionals. YMMV of course.

Possibly one of the companies that resells CRSP data would offer the tool or tools that you want: Data Access Tools | CRSP - The Center for Research in Security Prices
interesting. Thanks.

Yes, A is a very good company.
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Old 04-27-2020, 01:46 PM   #6
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interesting. Thanks.

Yes, A is a very good company.
Actually it is not that hard to find good companies. The problem is that good companies are not necessarily good investments. The "good investment" part is a lot harder to figure out.
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