Sector Diversification: Implications for Investors

Honors Program

[Honors-in-Discipline (Choose below)], Honors in Business

Date of Award


Thesis Professor(s)

William John Trainor Jr.

Thesis Professor Department

Economics and Finance

Thesis Reader(s)

Richard P. Gregory


This thesis examines if the correlations between equity sectors have increased over time, mitigating sector diversification. Investors and other financial enthusiasts have started to believe that sector diversification is not a useful investment strategy. To investigate whether correlations among the sectors are rising, this study analyzes numerous aspects regarding sector diversification. Twenty years of monthly sector returns are used to determine whether correlations among the sectors are increasing. Also, the analyzation of sector movement during up and down periods of the market is addressed within the thesis. This study finds that the majority of the sectors move together in times of a financial crisis, like the 2007-2008 market crash. Thus, when sector diversification is most needed, it often fails during times of strife. Furthermore, the study analyzes how the majority of the sectors tend to not move with the market over the twenty-year period. Results suggest the correlations between the sectors have not become closer contrary to popular belief. The importance and usefulness of sector diversification when investing is validated by this study’s results.


East Tennessee State University

Document Type

Honors Thesis - Open Access

Creative Commons License

Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.


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