Here’s is the full plot of our indexes for IP along with the S&P500 (we are using weekly price data):

Gross ROIs for RIPSID vs RIPSI vs S&P 500 for 7 month period ending 12-30-2011

This chart shows the individual components of our IP Indexes:

RIPSID component gross returns: 7 months ending 12-30-11

Finally, we can look at the plots to get a feel for the actual cross-correlations:

Cross-Correlations of gross returns for 7 months ending 12-30-11

Unsurprisingly, RIPSI and RIPSID are highly correlated, but RIPSID and S&P 500 have low correlation. This means that RIPSID is a good candidate to diversify portfolios having large firms.

Gross ROIs for RIPSID vs RIPSI vs S&P 500 for 2 month period ending 11-30-2011

Index Performance would have been substantially better if RAMBUS (ticker: RMBS) hadn’t taken a major drop on 11-15-11:

RIPSID component returns:2 mon ending 11-30-11

Cross-correlations increased compared to last month’s correlation matrix. Here are the current values:

Cross-Correlations of gross returns for two month time interval ending 11-30-11

Gross ROIs for RIPSID vs RIPSI vs S&P 500 for 2 month period ending 10-30-2011

We also computed the correlation of returns as exhibited in this figure.

Cross-Correlations of gross returns for two month time interval ending 10-30-11

While the correlation between RIPSI and RIPSID remains very high, as we expect, their correlations with the S&P500 dropped substantially compared to last month’s 2 month analysis.

Finally, we can see how the individual stock return components of RIPSID and RIPSI performed over the period:

RIPSID component returns:2 mon ending 10-30-11

Gross ROIs for RIPSID vs RIPSI vs S&P 500 for 2 month period ending 9-30-2011

Examining the correlation matrix in our last post, we note that the present cross-correlations have all increased. This is common when markets are driven by political headlines, as the world has seen and we have noted in our previous post.

Cross-Correlations of gross returns for two month time interval ending 9-30-11

Gross ROIs for RIPSID vs RIPSI vs S&P 500 for 2 month period ending 8-31-2011

Cross-Correlations of gross returns for two month time interval ending 8-31-11

Using the correlation matrix in our last post, we note that the present correlations had some large changes from two weeks ago: RIPSI and RIPSID both gained about 10% points of correlation with the S&P 500, yet both IP indexes continued to have superior gross returns.

We ran the numbers and we have these charts for gross returns and the cross-correlations among those returns:

Gross ROIs for RIPSID vs RIPSI vs S&P 500 for 2 month period ending 8-15-2011

Cross-Correlations of gross returns for 50-day time interval ending 8-15-11

It seems RIPSI and RIPSID did well compared to the S&P 500 over the last 50 days including the high volatility week last week.

Compare the correlations for 50 days ending 8-1-11 to the current correlations. They are roughly stable, except that the correlation between RIPSID and S&P 500 dropped dramatically in the last 2 weeks, from 61% to 40%.

Correlation Matrix RIPSI, S&P500, RIPSID; daily returns for 2 months ending 8-1-11

Each entry in the matrix is the statistical correlation between the indexes shown in the row/column heading. Of course, the matrix is symmetric, so we show only the unique cells. Gross returns were calculated using the price data for the 43 trading days from 1 JUNE 2011 through 1 AUG 2011. The correlations were computed for these series of returns.

The main message from this chart is that both RIPSI and RIPSID have a much lower correlation with the  S&P 500 than they have with each other.

The RocketCap Intellectual Property Stock Index for Design (RIPSID) consists of 8 pure-play IP providers, 7 of which are already part of RIPSI  (the “Designers”). Wi-LAN, Inc. is newly added. Wi-LAN meets all the three criteria we stated in defining RIPSI, except it has been trading on a USA stock exchange (NasdaqGS) only since 1 JUNE 11. Thus, our index values start on 1 JUNE 11.

The RIPSID consists of these component firms:

As we did for the component firms of RIPSI, we analyze the IP Monetization Efficiency for the Designers. The result, based on latest data from Google Finance on 6-2-2011, is shown in the chart below.

IP Monetization Efficiency of RIPSID design firms as of 8-2-2011

ARMH and WILN are the extremes of IP value and IP Leverage, respectively, while DLB and IDCC are more balanced in both value and efficiency.

The gross returns of RIPSID for the last two months ending on 6-1-2011, compared to the gross returns for the S&P 500 and for RIPSI are here:

Gross ROIs for RIPSID vs RIPSI vs S&P 500 for 2 month period ending 8-1-2011

Here are the gross returns for the same time period for all the individual firms in RIPSID:

RIPSID firms' gross ROIs over 2 month period ending 8-1-11

It’s useful to note that on 7-21-11, Interdigital’s stock (IDCC) made a huge jump on a news report that Google might consider acquiring IDCC for their patent portfolio. This jump has somewhat skewed both RIPSI and RIPSID.

Gross Returns for RIPSI vs S&P500; 3 months ending 7-29-11 (RIPSI in blue)

RIPSI indexes the asset class of intellectual property for the eco-systems  of  the architectural, electronics, mechanical, and  industrial global design engineering industries. The RIPSI details are given here.

Gross Returns for RIPSI vs S&P500; 18 months ending 7-29-11 (RIPSI in blue)

We define R&D efficiency as the ratio of a firm’s sales to their R&D expenses over a twelve month period. The sales and R&D data need to be compared as closely as possible for the same ending date, but this goal is hard to do for firms, such as our RIPSI firms, that publish data at varying end dates. But we used Google Finance again to get the most recent data by adding the results for the most recent 4 quarters, shown in th the chart below. The data tabled here is shown in the chart.

R&D Efficiency of RIPSI Components

Data: R&D Efficiency of RIPSI Firms

What’s fascinating here is how the components cluster into three clumps, according to their position in the IP supply chain (business model classification): Enforcers (Acacia, VirnetX Holdings), Designers (Arm, MIPS, Rambus, Dolby, Tessera, Ceva, Interdigital) and Helpers (Mentor Graphics, Cadence, Synopsis and Autodesk)

The  ”Enforcers” of IP value have huge efficiency, but relatively low sales. These do not originate IP as much as they defend it.

The next cluster is comprised of the firms that provide design tools, the Helpers. They have very high relative sales, but R&D Efficiency in line with the Designers who sell IP in the form of embedded designs.