Sector similarities in macro point 2 (Interactive Financial Analysis)
Nov 7, 2021 #IFA0002
In the last article, we saw why we need to diversify our investment, and what sectors are codependent in business, and thus have similar performance charts. We evaluated these sector similarities for the 16x16 pairs of sectors. The point was, if we want to diversify investment, we should not invest money on those similar sectors at the same time, because they are codependent!
Continuing from the last article, we’re going to see what other sectors have similar performance charts. You can see all the sector similarities and comparison of sector performances here on our page.
Definition of Diversification (investpedia.com)
What Is a Diversified Portfolio? (thebalance.com)
Diversification (Wikipedia)
Most similar sectors
In the last article, we found that the sector “Transportation” has a high similarity with “Industrial Products”, and predicted that it’s because companies that belong to “Transportation” ship products made by companies of “Industrial Products”. Here, the same thing may be happening with “Consumer Discretionary”.
“Consumer Discretionary” produces goods and services that are usually not essential for consumers. Consumer discretionary, for example, includes durable goods, automobiles, and high-end apparels. These goods are usually shipped by aircrafts and trucks. Therefore, there’s not wonder if we hear that the two sectors “Consumer Discretionary” and “Transportation” has a high similarity score about performance. You can see their performances here.
Definition of consumer discretionary
Another thing we notice is “Computer and Technology” and “Business Services” have high similarity as well. Even though their relative performance (difference of speed of growth) has changed after the COVID-19 pandemic, the similarity of their shape of graph is quite high before the pandemic, especially in early 2019. The performance of “Computer and Technology” has surged due to unusual demand for computers, chips, and game consoles.
The two sectors are somewhat codependent in business because huge potion of “Business Services” are supported by computers and software products. The three largest companies of “Business Services” are Visa (V), Mastercard (MA), and Accenture (ACN) as of Nov 17, 2021. That should be a part of reasons why the two sectors have similar performance chart.
Our website provides the whole view of sector similarities with interactive data. You can also find unsimilar sectors as well. Please check it!
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