How would you pick the stocks that are less highly correlated? High correlation refers to when a stock becomes more correlated with the index in a falling market.
Stock ABC has a correlation of 0.4, and stock DCE has also 0.4 correlation coefficient with index X.
The market fall more than 10% or so in a given period of time and here the correlation of ABC is 0.6, and of DCE 0.86
Indeed ABC is more desirable than DCE as it protects better the portfolio.
Anyone knows about a model that allows us to pick the right stock in such situations?