Looking for a hedge to the stock market? How about Apple Inc.?
Since at least the beginning of the year, shares of the onetime technology darling have been a perfect foil for the broader equity market, declining as the market rallied and vice versa. In other words, the stock has had a correlation of -0.825 with the S&P 500 index, according to a contributor to the Seeking Alpha website. Although not an Apple-to-apples comparison, the S&P technology sector through Aug. 2012 had a 0.91 correlation to the broader index of 500 constituent stocks, according to data compiled by Bespoke Investment Group. Through that same period, gold produced a 0.27 correlation to large caps, long bonds -0.62.
(To see how all 10 sectors of the S&P 500 fared to the larger index, click here.)
Apple and the market began to diverge significantly last year as the stock soared toward a high of over $700 in September while the market struggled. When the market rebounded in the fourth quarter, Apple began a precipitous decline to its current level around $451.
“Since September, when the market took off, Apple has been falling,” said Stephen Turner, an analyst with Hilliard Lyons, who has a long-term “buy” rating on the stock.
Year-to-date, the S&P 500 index is up 6.7%, while Apple is down 22%.
Over time, Apple is not particularly sympathetic to moves in broader measures of the stock market either. In fact, it's the 40th least correlated stock in the S&P 500 to the Dow Jones Industrial Average, with a correlation of 0.55, according to Bespoke. It has a 0.76 correlation to the Nasdaq 100.
Several factors have contributed to the recent fall in Apple's share price. Competition is increasing from smartphone makers like Samsung Corp. and more recently Microsoft Inc., and margins are slipping — in part because of Apple's introduction of lower-priced iPad minis. It has yet to strike a deal with the largest phone company in China — the world's biggest market for mobile phones — and investors are anxious to see another game-changing innovation from the company.
The stampede of hedge funds and mutual funds out of the stock last year could also have something to do with it.
The technology sector as a whole has lagged the broader market for the last six months because of the weak economy. But Apple, down about 35% from its high, is a good candidate to reverse some of the losses — just as the torrid market appears to be getting overheated.
“Apple could be a defensive play now with all the cash on their balance sheet, and given how far down it has fallen from its high,” Mr. Turner said.