Hey guys!

I'm working on the analysis of the results of actively managed mutual funds. Long story short, I need to make sure my funds are actually (1) different funds and (2) not simply replicating the index.

I made a correlation matrix and have found some results which I don't understand...

Fund A has a correlation of 95.84% with fund B.
Fund A has a correlation of 94.69% with the index.
Fund B has a correlation of 82.15% with the index.

I'm puzzled because if fund A follows the index and fund B follows fund A, surely fund B also follows the index. However, this does not seem to be the case (82.15 correlation means they differ quite significantly).

Any help will be greatly appreciated.

Cheers !