Core Insights - The article discusses the correlation of daily returns among the top 10 US stocks by market capitalization, highlighting that these stocks do not move independently, which raises concerns about market stability when the AI bubble potentially bursts [2][16]. Group 1: Market Capitalization and Stock Behavior - The top 10 stocks in the market, including Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta, Broadcom, Taiwan Semiconductor, Tesla, and Walmart, account for a significant portion of the market cap, with the top 10 S&P stocks representing 40% of the index's market cap [2][3][16]. - The analysis indicates that these top stocks behave more like a single entity or ETF rather than as individual stocks, with 57% of their behavior being fully correlated [14][15]. Group 2: Correlation Analysis - A total of 45 correlation numbers can be derived from the 10 assets, indicating a complex interrelationship among them [6][9]. - The least correlated stocks among the top 10 are Walmart and Broadcom, while Nvidia and Taiwan Semiconductor show the highest correlation, reflecting their shared industry focus [11][12]. Group 3: Implications for Diversification - The findings suggest that the perceived diversification in a portfolio of these top stocks is misleading, as nearly 90% of their behavior can be captured by just four independent dimensions or portfolios [14][15]. - The article emphasizes that a significant portion of the stock market's value is concentrated in these top stocks, which may lead to increased risk if they move together during market fluctuations [16].
Daily return correlation of top 10 US stocks by market cap in the last year