Markets & Finance

Going Against the Grain


By Numer de Guia One approach used by

contrarian investors is to find stocks that show a tendency to zig when the market zags. In today's environment, such stocks are those that have historically moved higher while the broader market drops.

How do you find them? Correlation analysis of stock returns helps identify which companies have historically moved with, or against, the benchmark Standard & Poor's 500-stock index. Using this yardstick, stocks are measured according to their correlation value, which can range from +1.0 (meaning a perfect synchronization with the movement of the S&P 500) to -1.0 (also a one-to-one relationship with the market -- but in the opposite direction, kind of like the ends of a see-saw).

SO CONTRAIRE. If one expects the market to fall further, investing in companies negatively correlated to the S&P 500 would be a reasonable strategy. Of course, this assumes that such historical behavior will continue and that the length of time used to calculate the value was sufficient.

In our latest screen, we looked for stocks that have statistically behaved contrary to the S&P 500, based on daily returns for the post-September 11 period: Sept. 18, 2001, through July 15, 2002.

And we used one additional criterion: All of the stocks had to carry an

S&P quality ranking of A- or better, meaning they have superior earnings and dividend track records over the past 10 years.

These 15 stocks made the cut. Their correlations with the index vary from -0.114 to -0.011.

Bancorp Connecticut (BKCT)

Federal Screw Works (FSCR)

First Long Island (FLIC)

First Mutual Bancshares (FMSB)

Florida Public Utilities (FPU)

Harleysville Savings Financial (HARL)

Independence Holding (INHO)

MainSource Financial (MSFG)

MetroBanCorp (METB)

Northern States Financial (NSFC)

NSD Bancorp (NSDB)

Peoples Banctrust (PBTC)

United Mobile Homes (UMH)

Velcro Industries (VELCF)

Vista Bancorp (VBNJ) De Guia is a portfolio services analyst for Standard & Poor's


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