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# Tag Archives: correlations

## A complicated answer to a simple correlation question

A data analysis surprise party. Simple question If I have correlation matrices each estimated with a month of daily returns, how much worse is the average of six of those compared to the estimate with six months of daily data? Expected answer Do a statistical bootstrap with the returns and compare the standard deviations across … Continue reading

## A pictorial history of US large cap correlation

How has the distribution of correlations changed over the last several years? Previously Posts about correlation boxplots explained Data Daily returns of 443 large cap US stocks from 2004 through 2012 were used. The sample correlations — almost 98,000 of them — during each year were created. If we were actually using the correlations, then … Continue reading

## Predicted correlations and portfolio optimization

What effect do predicted correlations have when optimizing trades? Background A concern about optimization that is not one of “The top 7 portfolio optimization problems” is that correlations spike during a crisis which is when you most want optimization to work. This post looks at a small piece of that question. It wonders if increasing predicted … Continue reading

## S&P 500 sector strengths

Which sectors are coherent, and which aren’t? Previously The post “S&P 500 correlations up to date” looked at rolling mean correlations among stocks. In particular it looked at rolling mean correlations of stocks within sectors. Of importance to this post is that the sectors used are taken from Wikipedia. Relative correlations The thought is that … Continue reading

## S&P 500 correlations up to date

I haven’t heard much about correlation lately. I was curious about what it’s been doing. Data The dataset is daily log returns on 464 large cap US stocks from the start of 2006 to 2012 October 5. The sector data were taken from Wikipedia. The correlation calculated here is the mean correlation of stocks among … Continue reading

## More S&P 500 correlation

Here are some additions to the previous post on S&P 500 correlation. Correlation distribution Before we only looked at mean correlations. However, it is possible to see more of the distribution than just the mean. Figures 1 and 2 show several quantiles: 10%, 25%, 50%, 75%, 90%. Figure 1: Quantiles of 50-day rolling correlation of … Continue reading

Posted in Quant finance, R language
Tagged correlations, equity correlations, jackknife, S&P 500, stock correlations
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## On “Stock correlation has been rising”

Ticker Sense posted about the mean correlation of the S&P 500. The plot there — similar to Figure 1 — shows that correlation has been on the rise after a low in February. Figure 1: Mean 50-day rolling correlation of S&P 500 constituents to the index. For me, this post raised a whole lot more … Continue reading

Posted in Quant finance, R language
Tagged correlations, equity correlations, S&P 500, stock correlations
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## Specific differences between Ledoit-Wolf and factor models

What can we learn about the difference in structure between a Ledoit-Wolf variance matrix and a corresponding factor model variance? Previously We’ve generated a set of random portfolios with constraints on the risk fractions of a Ledoit-Wolf variance matrix, and a corresponding set of random portfolios with risk fraction constraints from a statistical factor model. … Continue reading

Posted in Quant finance, R language
Tagged correlations, covariance matrix, Ledoit-Wolf shrinkage, risk fraction, variance matrix
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