In this post, I explore the correlations between the different sectors in the Saudi stock market, TASI. The data set used is from 6-Jan-2007 to 27-Dec-2015.
First, some explanation about the above correlation matrix is in order. For readability, I have abbreviated the long sectors names; for example, TASI.BFS is the Banks & Financial Services sector. The full list of the sectors names and their abbreviations is listed at the end of this post.
Correlation is a number between -1 (negative correlation) and +1 (positive correlation). For readability, I use a scale between 1 (weak correlation) to 10 (strong correlation) to represent the strength of correlation between two sectors. Note that in the Saudi stock market the correlation between sectors are all positive.
As mentioned above, correlations between sectors in the Saudi stock market are all observed to be positive correlations (i.e. not negative correlations between sectors).
The strongest positive correlation (around .85) is observed between the sector Industrial Investment (TASI.INI) and the sector Building & Construction (TASI.BDC). Below is a plot of the correlation between the daily log returns of both sectors. As you can see, the points in the plot are very close to each other.
The weakest positive correlation (around 0.35) is observed between the sector Energy & Utilities (TASI.EU) and the sector Media and Publishing (TASI.MAP). Below is a plot of the correlation between the daily log returns of both sectors. As you can see, the points in the plot are very dispersed. However, regardless of the weak correlation, extreme price changes happens at the same time.
That’s it for now. I’ll present more observations in the next post.
TASI Sectors Abbreviation
|TASI.BFS||Banks & Financial Services|
|TASI.EU||Energy & Utilities|
|TASI.AFI||Agriculture & Food Industries|
|TASI.TIT||Telecommunication & Information Technology|
|TASI.BDC||Building & Construction|
|TASI.RED||Real Estate Development|
|TASI.MAP||Media and Publishing|
|TASI.HTT||Hotel & Tourism|