Study 8: Sector Divergences
Does the average level of correlation between sectors have predictive value?
Some traders believe uptrends are more likely to continue when most sectors are participating in it; in other words, when “breadth” is strong. Since markets often defy intuitive ideas like this, I wanted to see if the data supports this hypothesis.
Scope
To measure divergences, we’ll consider the following sector ETFs:
To assess predictive value, we will …