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Whycliffes
Is there any method to ensure that the stocks that make up a portfolio are not too highly correlated?

I understand that this can be partially achieved by spreading across different sectors, but is there another method, so that the stocks that ultimately make up the portfolio are not too highly correlated among themself?

Sep 8, 2022 10:07:09 AM       
sglinski
Re: Is there any method to ensure that the stocks that make up a portfolio are not too highly correlated?

There is a function called "MaxCorrel"
From main page see Research->Factor & Function Reference-> and search for "MaxCorrel"

Sep 8, 2022 10:20:39 AM       
yuvaltaylor
Re: Is there any method to ensure that the stocks that make up a portfolio are not too highly correlated?

You can also run a screen on your portfolio by using the Portfolio or Account command. Put in your screen the rule
ShowCorrel(1,251)
(if you want the correlation of one year of daily returns). The screen results will display the correlation of every stock in your portfolio/account with every other stock.

Yuval Taylor
Product Manager, Portfolio123
invest(igations)
Any opinions or recommendations in this message are not opinions or recommendations of Portfolio123 Securities LLC.

Sep 8, 2022 2:18:16 PM       
Whycliffes
Re: Is there any method to ensure that the stocks that make up a portfolio are not too highly correlated?

Im getting an error using "MaxCorrel(50,1) < 0.5" when trying to us it in the screen backtest?

"ERROR: Invalid criteria in Rule 19. Error near 'MaxCorrel': Invalid command 'MaxCorrel'"

Used this: https://www.portfolio123.com/app/screen/summary/21345?st=1

Sep 8, 2022 10:01:41 PM       
Edit 1 times, last edit by Whycliffes at Sep 8, 2022 10:05:54 PM
yuvaltaylor
Re: Is there any method to ensure that the stocks that make up a portfolio are not too highly correlated?

Im getting an error using "MaxCorrel(50,1) < 0.5" when trying to us it in the screen backtest?

"ERROR: Invalid criteria in Rule 19. Error near 'MaxCorrel': Invalid command 'MaxCorrel'"

Used this: https://www.portfolio123.com/app/screen/summary/21345?st=1


MaxCorrel can only be used in strategies/simulations. It's not available for screens. Sorry that this wasn't in the documentation: I'll fix that.

Yuval Taylor
Product Manager, Portfolio123
invest(igations)
Any opinions or recommendations in this message are not opinions or recommendations of Portfolio123 Securities LLC.

Sep 9, 2022 9:17:21 AM