AI Sector Correlation

Definition

AI Sector Correlation measures how closely a stock's price movements have tracked the artificial-intelligence sector over the trailing 12 months, isolated from ordinary broad-market movement. It is shown against two benchmarks: a broad AI-themed ETF (the "AI sector" reading) and a semiconductor ETF (the "AI hardware" reading). It's a statistic about historical price co-movement, not a measure of a company's AI-driven revenue and not a valuation judgment.

Formula

r = Pearson( residual(Stock | RSP), residual(Benchmark | RSP) )
Stock = The ticker's own daily returns over the trailing year
Benchmark = Either AIQ (the "AI sector" reading) or SMH (the "AI hardware" reading); the calculation runs once for each
AIQ = Daily returns of the Global X Artificial Intelligence & Technology ETF, a broad AI-sector basket
SMH = Daily returns of the VanEck Semiconductor ETF, the hardware side of the AI boom
RSP = Daily returns of the Invesco S&P 500 Equal Weight ETF, the broad-market control
residual(X | RSP) = What's left of X's daily returns after regressing out RSP — the part of X's movement RSP doesn't explain

RSP, not SPY, is the market control. SPY and AIQ have roughly 0.84 correlation with each other, since SPY is now heavily weighted toward AI-related mega-caps — controlling for SPY would strip out real AI signal along with market noise. RSP has only around 0.51-0.53 correlation with AIQ, a cleaner "broad economy" proxy. This is a non-obvious methodology choice: a naive raw correlation with AIQ (skipping the market-control step entirely) scores almost any large growth stock as "AI-correlated," since growth stocks broadly move together — partial correlation removes that.

How to interpret it

0.40 and above
High (red) — strong co-movement with the AI sector beyond what broad-market exposure explains; the price is the most exposed to swings in AI-sector sentiment
0.20 to 0.39
Moderate (amber) — meaningful co-movement with the AI sector beyond the broad market
0.05 to 0.19
Low (green) — a weak but present link to AI-sector price moves; little exposure to AI-sector sentiment
-0.19 to 0.04
None (cyan) — no meaningful link to the benchmark detected over the trailing year; cyan because there is nothing to flag either way
-0.20 and below
Inverse (red) — the stock has tended to move against the benchmark, beyond what broad-market movement explains. Red because it is as strong a link as High, just in the opposite direction

Worked example

Worked example: AMD

Overlapping trading days (trailing 1 year)~249
Partial correlation with AIQ, controlling for RSP0.68
BandHigh (0.40 and above)
AMD's price has moved closely with the AI sector specifically, not just with growth stocks generally — a High reading. For comparison, over the same window Nike (a company with no AI connection) scored -0.17 — None, correctly showing no meaningful link.

Common mistakes

Reading a raw AIQ correlation without controlling for the market
Most large-cap growth stocks correlate with almost any other large-cap growth ETF simply because they move with the same macro forces — a raw correlation flags nearly every big tech stock as "AI-correlated" regardless of actual AI exposure. Partial correlation, controlling for a broad-market benchmark, removes this.
Using SPY as the market control instead of an equal-weight index
SPY is itself around 84% correlated with AIQ, since a handful of AI-related mega-caps now dominate its weighting. Controlling for SPY would cancel out genuine AI signal along with market noise. An equal-weight index like RSP is a cleaner separation.
Reading only the broad AI reading
The broad AI ETF mixes hardware, cloud and software companies, so a stock can look unrelated to it while moving strongly with, or against, semiconductor stocks. Some large software companies have shown a near-zero reading against the broad AI ETF but a clearly negative one against semiconductors. Check both readings.
Treating a high score as investment advice
This is a descriptive statistic about historical price behaviour, not a valuation judgment. A high-scoring stock can still be overvalued; a zero-scoring stock can still be a sound investment for unrelated reasons.
Assuming "None" means a company has no real AI business
The score measures how the market has recently priced the stock, not the company's actual business exposure. A company can have a genuine AI-infrastructure story (for example, supplying power or components to data centres) before the market has started trading its shares in sync with AI-sector sentiment.
Expecting parity between US and international tickers
Non-US-listed stocks trade on a different calendar to the US-listed AIQ/RSP benchmarks, leaving fewer directly overlapping trading days after alignment. This can understate the correlation for an otherwise AI-linked international company — a known limitation of the method.

Frequently asked questions

What is "AI Sector Correlation"?

A measure of how closely a stock's price movements have tracked the AI sector (represented by a broad AI-themed ETF) over the trailing 12 months, after removing the effect of general stock-market movement. It answers "does this stock move with AI-sector sentiment specifically, beyond just moving with the market overall?" — not whether the company's revenue comes from AI.

How is it calculated?

We compute daily returns for the stock, an AI-sector ETF (AIQ), and an equal-weight broad-market ETF (RSP) over the trailing year, then calculate the partial correlation between the stock and the AI ETF while statistically controlling for the broad-market ETF. This isolates AI-specific co-movement from ordinary market-wide moves. The same calculation is then run a second time against a semiconductor ETF (SMH) to give the separate "AI hardware" reading (see AI Hardware Correlation).

What does "Inverse" mean?

A reading of -0.20 or lower. After removing general market movement, the stock has tended to rise when the benchmark (the AI sector or semiconductor stocks) falls, and fall when it rises. It is a strong link in the opposite direction, which is why it is coloured red like High. It describes past price behaviour, not a prediction.

What is the "AI hardware" reading, and why show two numbers?

The broad AI ETF (AIQ) mixes hardware, cloud and software companies, so a stock can look unrelated to it while moving strongly with, or against, semiconductor stocks (SMH), the hardware side of the AI boom. Showing both readings lets you see either pattern. The same bands and colours apply to both.

What do the colours mean?

The colour shows how strongly the stock's price has been tied to the benchmark, in either direction, not whether that is good or bad. Red means a strong link: High (moves with it) or Inverse (moves against it). Amber is Moderate, green is Low, and cyan means no meaningful link (None). Red is not a quality or valuation warning.

Does a high score mean I should buy this stock?

No. This is a descriptive statistic about historical price co-movement, not a valuation judgment or a recommendation. A stock can show high AI correlation and still be overvalued, and a stock with no AI correlation can still be a sound investment for other reasons.

Why does KashVector control for RSP instead of SPY?

SPY and AIQ have roughly 0.84 correlation with each other, since SPY is now heavily weighted toward AI-related mega-caps — controlling for SPY would strip out real AI signal along with market noise. RSP (equal-weight) has only around 0.51-0.53 correlation with AIQ, a much cleaner separation between "the AI sector" and "the broad market."

Why do some international stocks score lower than expected?

Stocks listed outside the US trade on a different calendar to the US-listed AIQ/RSP benchmarks used for this comparison, so there are fewer directly overlapping trading days. This can understate the correlation for otherwise AI-linked international companies — a known limitation of the method, not a judgment about the company.

Related terms

AI Hardware CorrelationAltman Z-ScorePiotroski F-ScoreAll terms →
See it on a real ticker pageRead about AI Hardware Correlation