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2 free tools I use before investing in ETFs

Updated: Mar 15

I will skip the introduction of what an ETF is and how it can help supercharge your portfolio. Rather, I want to share these 2 free tools that I use whenever I decide which ETF to invest in.



This tool aims to see the common holdings of any two ETFs.


Why is looking at the common holdings of any two ETFs important?


Because you don’t want to invest in ETFs that are practically the same. One advantage of investing in ETFs is diversification. If you are investing in two ETFs that hold the same companies, then there is no #diversification at all.


So to save the hassle of looking through the list of holdings for similarities, I use the tool to search for it.


Using SPY and QQQ as examples, you can see that there are 78 overlapping holdings. The tool even breaks down the percentage of holdings. It is good to know that of the 102 QQQ holdings, 76.5% of them are also in SPY.


ETFs Fund Overlap | The Globetrotting Investor | Stock Analysis
Screenshot from ETF Research Center Fund Overlap Tool

But what is more important to look at is the weightage. In my opinion, more than 40% is a lot. It means that they share quite a bit of similarities.


ETFs overlap by weight | The Globetrotting Investor | Stock Analysis
Screenshot from ETF Research Center Fund Overlap Tool

While you don’t want to hold two ETFs that are almost the same, it is also important that they are not too different. You don’t want to diversify till a point where one ETF moves up, and the other moves down, giving you no net difference. In long run, you will be wondering why your ETF portfolio doesn’t grow.


ETF correlation coefficients


To analyse this issue, use the 2nd free tool, ETFScreen.com, to check on the correlation coefficients – a measure that determines the degree to which the movement of two different ETFs is associated.


The correlation coefficient value ranges from -1.0 to +1.0. If the correlation coefficient is greater than zero, it is a positive relationship. Conversely, if the value is less than zero, it is a negative relationship.


Using this tool to analyse SPY and QQQ gives you a coefficient of 0.94 – which means that they have a very strong positive relationship. When SPY moves up, QQQ moves up as well.


QQQ positive correlation with SPY | The Globetrotting Investor
Screenshot from ETFScreen.com

It is fine in investing two ETFs that have a positive relationship (correlation coefficient is greater than zero). What you should avoid is investing in two ETFs that have a negative relationship.


For example, SPY and SH have a -1.00 coefficient, a perfect negative correlation. This means that whenever SPY moves up by $1, SH moves down by $1. In the long run, you will not gain from investing in these two.


SH negative correlation with SPY | The Globetrotting Investor
Screenshot from ETFScreen.com

So, before you invest in any more ETFs, make sure you check how each ETF relate to each other to boost your profits.

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