Apple Stock Declares Its Independence

by Tyler Craig | October 8, 2013 1:37 pm

Just in case you didn’t have enough reasons to consider Apple (AAPL[1]) for your portfolio, here’s another fascinating tidbit to mull over: Apple stock has declared its independence from the market.

That’s right.

AAPL and the S&P 500 Index have experienced a falling out of sorts. Whereas the two chums used to pal around together, traveling northbound and southbound with synchronicity, they now frequently move in completely opposite directions. This curious change in behavior really started in late-2012 when Apple stock began its distressing descent from $705.

Perhaps the easiest way to assess the changing relationship between AAPL and the S&P is using a correlation study. For those otherwise unfamiliar with this powerful indicator, a brief review is in order:

Why Correlations Matter

Measuring relationships plays a key role any time investors want to better understand how different asset classes are linked. It also aids in structuring a diversified portfolio because you need to know which securities move together and which move in opposite directions.

The correlation study measures the degree to which two assets are linked by oscillating in a range between +1 and -1. A score of +1 suggests both assets are perfectly positively correlated, which means they always move in the same direction. In contrast, a score of -1 suggests both assets have a perfect negative correlation, which means when one rises, the other falls, and vice versa.

Finally, a rating of zero suggests both assets have no correlation, meaning the behavior of one has no bearing whatsoever on the other.

Apple Stock and the S&P 500

Click to Enlarge
As shown in the accompanying five-year daily chart, AAPL’s correlation began a metamorphosis in late 2012. During the “old normal,” Apple stock boasted a strong positive correlation with the S&P 500, rarely venturing into negative territory.

Now, however, it has entered an entirely different phase — the “new normal” — where AAPL’s correlation is all over the map, hovering near zero and below more than above.

Far from being a good proxy for the market, AAPL has become a rebel stock hell-bent on marching to the beat of a different drummer.

Bottom Line

How long it lasts is anyone’s guess, but while it persists in its independent way, investors in search of true diversification ought to consider adding Apple stock to their portfolios.

As of this writing, Tyler Craig was long AAPL.

  1. AAPL:

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