Conservative Economic Commentary | Topic: Covariance

Obamacare Is Billion-Dollar Cash Cow for AARP http://bit.ly/e7c421 #tcot Exploiting our gullible elders ... where the big bucks are. >>
$2 billion union payments found hidden in Obamacare http://bit.ly/gb7Yat #tcot Korruption, Kolusion & Kickbacks in Obama's DC. >>
@Kriskxx Interesting point. I was also much lighter in the Carter years. But then, I was younger, exercised a lot, and lived abroad. >>
@andilinks Whether deflation is worse than inflation depends on who you are. Great Depression was best of times for people with jobs. >>
90% of Americans still have jobs; interest rates, inflation low... Obama hopeful for 2012. #tcot BUT INFLATION IS RISING, RISING >>

Subject: covariance

In probability theory and statistics, covariance is a measure of how much two variables change together.

In finance, the beta (?) of a stock or portfolio is a number describing the relation of its returns with that of the financial market as a whole.
An asset with a beta of 0 means that its price is not at all correlated with the market. A positive beta means that the asset generally follows the market. A negative beta shows that the asset inversely follows the market; the asset generally decreases in value if the market goes up and vice versa.[2]
Correlations are evident between companies within the same industry, or even within the same asset class (such as equities), as was demonstrated in the Wall Street crash of 1929. This correlated risk, measured by Beta, creates almost all of the risk in a diversified portfolio.
The beta coefficient is a key parameter in the capital asset pricing model (CAPM). It measures the part of the asset’s statistical variance that cannot be mitigated by the diversification provided by the portfolio of many risky assets, because it is correlated with the return of the other assets that are in the portfolio. Beta can be estimated for individual companies using regression analysis against a stock market index. (Wikipedia Jan 2010)

Market timing

Buyback news is an unreliable ‘buy signal’

By John Schroy, on March 21st, 2006 |

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Many investors have finally caught on that stock buybacks are a manipulative device used by company management to increase market levels and give value to stock options. Now, there are newsletters that inform short-term traders when companies announce equity repurchase programs. Buying on buyback news might have been a good idea ten years ago; it is certainly no longer a sure-fire, get-rich-quick formula.

The flaw in the buy-on-buyback-notice scheme is market covariance.

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