Research popular ETFs, funds and stocks to find other funds with returns that are highly correlated or negatively correlated.

What does positively correlated mean?

This means that if you look at the daily movement of two stocks, they generally move in the same direction.

For example, the Vanguard - Total Stock Market ETF is extremely highly correlated to the Schwab - Multi-Cap Core ETF, because both of them are generally composed of the same underlying combination of stocks. So when the different stocks go up and down everyday, these funds will generally move up and down in lockstep because they have very similar buckets of the various underlying assets.

What does negatively correlated mean?

This means that if you look at the daily movement of two stocks, they generally move in the different direction.

The types of funds which are negatively correlated will generally have entirely different types of assets. For example, the Vanguard - Total Stock Market ETF has a high negative correlation to the Vanguard - Long-Term Government Bond ETF, because the underlying assets (stocks and government bonds) generally move in opposite directions everyday.

However among large funds, negative correlations are often weaker than positive correlations. So while it is often very easy to find ETFs that are almost exactly the same, it is generally not possible to find ones that are exactly opposite.


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