Correlations across sectors and factors in Signal Sigma

In order to understand the inner workings of the market, our system needs a solid grip on groups of assets that trade in a similar fashion (correlated assets). In our methodology, a stock has 4 simultaneous properties when it comes to its set of correlations:

• Most Correlated Asset Class (from a group of 4 ETFs)

• Most Correlated Sector (from a group of 12 Sectors)

• Most Correlated Factor (from a group of 10 Factors)

• Benchmark (the most correlated ETF out of all of the above)

Categorizing stocks this way gives us a useful blueprint in terms of determining if a portfolio is correctly diversified. All correlations are calculated using a 90-day historical window.