Stock-sector correlation and dispersion are dropping just as earnings season heats up. But the reading is down from Correlation is a measure of how the prices of two types of investments, or even two stocks, move in relation to each other over a certain time.

Stock correlation table and analysis

When two assets exhibit a perfectly negative correlation, or a —1 reading, their prices move in opposite directions in response to those same forces. Among individual stocks, investors might drill down on valuation and more. Markets with lower average correlations are healthier for two reasons, argues Nicholas Colas, chief market strategist at Convergex. First, investors might allocate more capital to equities when the correlations between industry groups are lower.

Second, lower correlations show that capital is likely flowing efficiently and will find the sector where a majority of investors sees the most upside potential. While that is lower than the 0. Moving forward, investors may remain challenged to entirely ignore broad-market drivers.

In my opinion, the bigger question will be how does the fluctuation impact consumer spending. The impact of that likely would play out in future earnings cycles.

There may be just too many factors at work to contemplate individual stocks from the bottom up and not include top-down macro influence, too. Here comes what could be the ugliest earnings season since In other words, there will still be losers and winners among stocks and there may be more losers; lower correlations can simply make it easier to distinguish one from the other.

Bottom line, investors may need patience. Rachel Koning Beals is a MarketWatch news editor in Chicago.

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Correlation Tracker - Enter a symbol to find high or low correlated securities

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Examining Industry Return Correlations

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