Stocks/ETFs with an "Inverse Correlation"

  1. 31 Posts.
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    Hi all.

    What is the closest anyone has come to finding an pair of stocks with a correlation of -1 (or as close as possible)?

    Has anyone successfully found a stock (or passive/low-fee ETF) with a strong inverse correlation to the ASX200 over the long term?

    My goal is to have just 2 stocks or funds in my portfolio.
    (ie, no cash).

    Stock A and Stock B are "strongly inversely correlated".

    Let's call these stocks "Stock A" and "Stock B".


    I want to maintain 50% of the value of my portfolio as Stock A and 50% of the value of my portfolio as Stock B.
    • When stock A rises above it's fair value, I expect stock B to fall by roughly the same amount from it's fair value. Stock A will therefore represent > 50% of my portfolio's value, while Stock B will represent < 50%.
    • At such a time, I want to sell a proportion of Stock A and immediately purchase more Stock B.
    • In doing so, I will have achieved my goal of keeping 50% of the value of my portfolio as Stock A and 50% of the value as stock B, respectively.

    What do you think about this hedging strategy?

    Would it be effective and cost effective?

    I think the most important aspect of this strategy, is the choice of stocks.


    ==> Can anyone provide some thoughts on how to find stocks with a strong inverse correlation?

    Thank you in advance
 
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