WHAT do you believe that is actually false? Few ever ask themselves that. Most accept their gut instincts or investing wisdom passed down from others.

Yet, many investing axioms are provably false. Rising oil is bad for markets – wrong. Stocks move in the opposite direction from bonds – wrong again. High interest rates kill tech stocks – even more wrong.

Don’t take my word for it. An easy and powerful tool for uncovering mirages is at your disposal: correlation. This seldom-used but simple tool busts many market myths, revealing profitable opportunities en route.

Correlation measures the relationship between two variables. When one zigs, how reliably does the other zig in parallel... or zag? Or flip-flop randomly?

Here is the thermometer for this: A correlation of one signals perfect parallel wiggles, while minus one means a polar-opposite swing. A correlation of zero signals no relationship whatsoever: the two variables move together and opposite equally.

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To prove any relationship – positive or negative – correlation should be above 0.5 or below minus 0.5. Otherwise, the correlation is too weak. You can do this on your computer. It’s easy. I’ll teach you.

Let’s start with one straight from the headlines: Given the Middle East conflict, many fear oil-supply threats mean prices will rise, dooming stocks.

This seems logical. If companies and consumers must pay up for fuel, won’t it dent their pockets, profits and stocks?

You can test this theory. Stock and commodity price data are easily available on many financial websites. Any decent spreadsheet program offers a correlation function letting you test the theory. Use it. Few do.

Comparing weekly oil prices and Singapore stock swings these last 20 years shows there is a small positive correlation between them of 0.29. Singapore stocks show a timid tendency to move up and down with oil prices, not against them.

Globally, oil and stocks have a similar 0.32 correlation. In the United States, oil and stocks have a 0.29 correlation. These aren’t strong relationships. They don’t say that rising oil prices are very bullish, but they do probably undercut any notion that rising oil prices bludgeon stocks.

Next, consider the widely held belief that stocks rise as bonds fall. Pundits recite it endlessly. Strategists commonly base decisions on it.

The supposed logic: When more money flows to stocks, less can flow to bonds (and vice-versa). This, too, sounds sensible; but is it true?

If it is, the correlation between weekly stock and bond price movements should be strongly negative. (Yes, such a calculation would exclude stock dividends and bond interest payments, but this maxim typically cites price returns. With correlation, direction is the key – not magnitude.)

Over the past 20 years, however, the ICE BofA US Treasury 7-10 Year Index has had a flimsy minus 0.25 correlation with America’s S&P 500 – too weak to trade profitably.

The correlation figure suggests stocks and bonds move in opposite directions slightly more often than not, but also quite frequently move together.

Indeed, the parallel plunges in stocks and bonds this year have perplexed pundits who heralded a seismic shift.

Want to test this correlation another way? Bond yields, by definition, move in the opposite direction of bond prices. Therefore, stocks and 10-year bond yields should be strongly positively correlated.

Yet, Singapore’s 10-year bond yields and the Straits Times Index have an extremely weak correlation of 0.07 over the past 15 years (which is the longest time frame for which data is available). That is almost no relationship at all.

How about recent fears that rising interest rates are killing tech stocks? The logic: Higher interest rates make projected earnings less valuable. Finance classes teach that principle as part of their core curricula.

Testing this with US tech stocks’ correlation to US 10-year Treasury yields gives a correlation of 0.22 – showing a slight tendency for tech stocks to rise with higher bond yields, not fall (albeit a weak one).

Yes, rates rose last year as tech stocks plunged – fitting the theory. Look further, however, and you find that rates kept rising even as tech stocks have led 2023’s rebound.

Admitting that beliefs are wrong is tough emotionally, especially ones that make intuitive sense to you. In markets, however, overconfidence kills.

So, use correlation to test widely accepted market beliefs – especially your own. If you believe something, many others probably do too. Disproving it therefore gives you an edge.

Why something occurs is always harder to know than merely observing what happens. While high correlation doesn’t prove causality, low correlation disproves false conventional market wisdom.

Remember also that surprises are what move markets most. With many investors blindly adhering to false axioms, you can identify what they miss and pounce on opportunities. Correlation is ready to show you the way. Harness its power and profit.

The writer is the founder, executive chairman and co-chief investment officer of Fisher Investments, an independent investment adviser serving both individual and institutional investors globally