Over the past week, I have done a significant statistical project analyzing the correlation between P/E and stock price and PEG and stock price across the Dow 30 and have analyzed which stocks have the highest correlation between their price changes and their P/Es and PEGs.  To do so, I have taken all the correlation coefficients between P/E and stock price and PEG and stock price and compared them to the stock’s beta and market cap, essentially testing to see whether smaller, more volatile companies are better for the use of technical indicators or whether larger, more stable companies are.  Ultimately the results, as can be seen by the charts indicated that stocks with higher levels of volatility (higher beta and lower market cap) were more prone to having higher correlations with their technical indicators. This was particularly true of the PEG whose charts are shown below (in order to see the P/E charts and see additional analysis, subscribe for FREE).

Although the R squared values are low to say the least, it is more important to note that they are significantly impacted by the variety in the stocks and the sectors that the 30 Dow stocks represent.  At the end of the day, there is a clear correlation that exists that indicates that higher volatility implies a higher correlation between a stock price and its technical indicators, specifically the PEG.  All stock-PEG and stock-P/E correlation coefficients were calibrated to the S&P so the data is quite valid and indicative that technical ratios are important despite how often they are over looked.  More importantly it gives credence to examining fundamentals when looking at stocks and demonstrates that one should give more weight to technical indicators when the stock is more volatile since it is in those instances when the fundamentals of a stock are most indicative of the direction the stock itself takes and will take in the coming days and weeks and months ahead.