A measure of the degree of linear association between a pair of random variables.

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3
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1answer
235 views

Does the correlation amongst stocks rise when stock values decline?

Is there any research on whether the correlations among stocks rise when stock indices decline? Which model could account and test for that effect ? Maybe GARCH-BEKK, or some models using copulas?
3
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3answers
527 views

portfolio diversification tester

Are there any online tools (optionally with developer API, to spare me the scraping) that given an existing portfolio, calculate how well a new candidate position would score to increase combined ...
2
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2answers
353 views

Why does it “say” portfolio diversification not suitable during market turmoil?

Currently I am trying to get a hold of MPT, asset allocation and related applications. While reading a particular resource, it says diversification works best for "normal" financial markets and ...
2
votes
1answer
78 views

Correlation of asset to portfolio, given certain variables

Ultimately I'm trying to calculate stdev contribution, but I've hit a hurdle. What I have: 20x20 correlation matrix for various assets Standard deviations for each asset Returns for each asset ...
2
votes
2answers
149 views

2 stocks, no shorting vs shorting. (concrete questions, mean-variance)

I'd appreciate help with the following questions. Suppose there are two stocks $A$ and $B$ with expected returns $E_A, E_B >0$ and volatilities $v_A, v_B >0$, respectively . Also, suppose ...
2
votes
1answer
201 views

Need overlapping sample autocorrelation correction for calculating asset return correlations

I want to measure the covariance structure of various asset returns based on varying investment periods. Campbell and Viceira (2005) do this, using known return predictors (i.e. dividend yield, ...
2
votes
1answer
1k views

Why do stocks with a negative beta return less than the risk free rate?

Let's say we have two stocks, Stock A and Stock B. Both of them have the same standard deviation $\sigma$, and therefore have the same risk. The only difference is that Stock A has a perfect ...
2
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2answers
571 views

Are two stocks with the same beta have a correlation of 1?

If two stocks have the same beta over same time period, does it mean they are 100% correlated over that time period? In a CAPM framework, a stock's beta is defined as $$\beta_1={\rm Cov} (R_1, M) / ...
2
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1answer
86 views

Partition assets into minimally correlated portfolios

My question covers a more or less classical portfolio optimization situation with a twist: How to partition assets into minimally correlated portfolios, with and without asset overlap. I have $N$ ...
2
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2answers
187 views

Correlated Wiener processes of different factors

I'm relatively new in this field, so I have a couple of points that I need to clarify. I would like to know how I can estimate the correlation matrix necessary to implement a Cholesky decomposition ...
2
votes
1answer
536 views

Counterintuitive time varying Beta with Kalman filter

If you're used to play with R, you'll enjoy the following reproducible code: ...
2
votes
1answer
177 views

Combining covariances?

Consider an economy with assets with return processes $A$, $B$, $C$, $D$. Consider a weighted index with return process $I=aA + bB + cC + dD$ where $a,b,c,d$ are coefficients, and $a+b+c+d = 1$. ...
2
votes
2answers
399 views

How to calculate cumulative loss from two factors that have negative correlation?

I went through the most advanced books on statistics and still can't find an answer. There is a well known formula for combining volatility of two correlating variables, but what about adding the ...
2
votes
0answers
105 views

Correlation between idiosyncratic residuals and forward returns

The classic mean-reversion strategy is to calculate an "expected return" (alpha) by computing the raw return for each security and then remove the part which you think is market driven. Statistically ...
2
votes
0answers
156 views

Potential pitfalls in the use of correlation

Background: The red line is an index, which goes from 0 to 100, measuring uncertainty in the markets. The dark blue line is a price index, which has a lower bound at 0, and virtually no upper bound. ...
2
votes
0answers
265 views

How to calculate correlations(COT report) in R ? [closed]

First thing i want to do is load data(.csv) into R. The data i am concentrating are the COT reports. Want to load a single column into R and calculate the correlation with the proper instrument.
1
vote
3answers
168 views

Calculate correlation between two sub portfolios and the combined portfolio

I have two sub portfolios (lets call them portfolio a & portfolio b - a portfolio is just a vector of weights that sum to 1) that combine to create a total portfolio. I also have a 2 x 2 ...
1
vote
1answer
123 views

Given a correlation martrix, calculate portfolio's correlation with its assets

Find correlation vector like $[ d e f ]$ where d, e and f represent correlation of P(portfolio) with its assets A, B and C respectively. The assets A, B, C can be another portfolio. In order for ...
1
vote
2answers
126 views

how to extend lognormal model so that $\sigma$ is correlated to $\mu$?

Consider a log-normal model, $dx / x = \mu dt + \sigma dW$, where $W(t)$ is a Wiener process. Let's say $\mu$ and $\sigma$ change with time, slowly, so we note them by $\mu(t)$ and $\sigma(t)$. ...
1
vote
1answer
370 views

Testing Significance of Correlation

Lets say I have the returns of two stocks(stock1 and stock2). Now without running a regression, I lag one of the variables, calculate the correlation between the two stocks and repeat this process as ...
1
vote
2answers
133 views

Buying one company or index against another, is this readily possible with options, with an accurate return (also Alpha Indexes)

There's a relatively new product in the market / on the Nasdaq called Alpha Indexes. It lets one own a company -- e.g. Apple, GE, Google, etc -- as the difference between how that company does (the ...
1
vote
2answers
58 views

Implied Correlation using market quotes

Is there a way to retrieve the implied correlation between stock price and zero coupon bonds?
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2answers
95 views

Harnessing small correlations for reliable profit

It is said that Edward O. Thorp was able to harness small correlations for reliable financial gain. I've seen some strategies based on strong correlations which did not seem particularly reliable. ...
1
vote
1answer
274 views

Help with understanding a normal distribution/probability question

Could someone please help me translate what this is saying on page P15, section 4.2: http://www.ntuzov.com/Nik_Site/Niks_files/Research/papers/stat_arb/Ahmed_2009.pdf Specifically: When the ...
1
vote
2answers
150 views

Correlation between S&P500 returns and 10y US Treasuries yields

I'd like to investigate the comovement of stock index returns with bond yields but I don't know which return's duration to use (1-year, 1-month or anything else) to get a better view of the ...
1
vote
1answer
134 views

High correlation will help detect spurious regression over cointegration?

I'm analyzing two financial time series with Johansen method. A high Correlation coefficient using the Pearson method will help me to detect spurious cointegration models to avoid? If this is not ...
1
vote
1answer
50 views

Explain drop in Correlation between two time series in consecutive periods

I have a time series for a security list with 2 parameters calculated for each time period. For example, for a stock XYZ, I have Param1 and Param2 calculated over various time periods stacked against ...
1
vote
0answers
27 views

Correlation Multiple Currencies

If i have a portfolio of stocks from different currencies and i want to generate a correlation matrix from the stocks, how is the correct procedure ? Imagine a portfolio which the base currency is ...
1
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0answers
87 views

how to identify similar assets based only on a few price samples

Using quantitative finances techniques on limited information, how might one go about finding similar(highly correlated) assets whose public information is available? The only data offered on a list ...
0
votes
2answers
298 views

What stock market indicators to model based on twitter feed? [closed]

We are developing an algorithm that models twitter users and groups of words that may indicate real world events. One application is modelling elections, i.e which party is likely going to win. ...
0
votes
1answer
64 views

Sample size and historical correlation matrices

I was wondering whether any literatures existed on how to properly estimate correlation matrices from historical data. Obviously the entire procedures allows a lot of leeway. The frequency of ...
0
votes
1answer
323 views

Non-intuitive correlation between S&P sector indexes and economic indicators

I am trying to understand how changes in economic indicators like Unemployment Rate, Inflation Rate, and Consumer Sentiment affect the portfolio values. For that I want to measure the correlation ...
0
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0answers
58 views

Correlating random numbers seems to skew the data

First off, apologies for the cross-post from mathematics, but I found this site later and think it would be a better fit for the question (besides, there has been no comments/answers on mathematics ...
0
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0answers
116 views

Is there a Newey West like correction for overlapping data correlation estimates?

I already posted a related question a while ago but was unsure if I should post within the same question. I want to estimate mulitperiod asset return correlations and test if there are significant ...
0
votes
1answer
78 views

Can we model components in a set of multivariate multi-period time-series data?

There are N data sets in periods occurring weekly/monthly, across a 10-year historical timeline. In each period, five dates are observed (labelled a to e), where a denotes the day the period ...
0
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0answers
70 views

UAC- Unbiased Average Correlation for a Matrix of stocks

Once I have computed a correlation matrix for a portfolio of stocks, how do I calculate the UAC for the correlation matrix? ie, how do I strip out any auto correlation among the names?
0
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0answers
97 views

Using a correlation network for classification?

I'm trying to find a way to classify stock price data that has been sampled at random, uncorrelated, time periods. While looking for an algorithm to help me use a correlation matrix for ...
0
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0answers
207 views

Time-varying correlation via state-space representation and Kalman filter

Let a linear time-varying mode like this one: $y_{t}=\alpha_{t}+\beta_{t}x_{t}+\epsilon_{t}$. You can also suppress the constant term to simplify this example: $y_{t}=\beta_{t}x_{t}+\epsilon_{t}$. ...
0
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0answers
176 views

Correlation Sensitivity

Suppose I have 2 stocks $S_{1}$ and $S_{2}$: \begin{align} & dS_{1}=rS_{1}dt+\sigma_{1}S_{1}dB_{1}\\ & dS_{2}=rS_{2}dt+\sigma_{2}S_{2}dB_{2}\\ & dB_{1}dB_{2}=\rho dt \end{align} Then I ...
-1
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0answers
36 views

Cross gamma intuitive calculation

I'm trying to figure out if there is a way to intuitively calculate cross gamma. I have a gamma table for 2 (or more) assets Asset 1 ...