Currently, I calculate beta, correlation, and covariance measures using daily log normal returns of Security A and Benchmark A. What would it mean if I were to use daily log normal excess returns in these tests? In such a case, I have two hypothetical definitions of excess returns: 1. daily return - average return 2. daily return of security A - daily return of benchmark A
Is there an advantage to doing this?
If I am comparing security A to benchmarks A, B, and C, where there is some correlation between the benchmarks, how could I "clean out" this correlation, so that when I ran the comparison, the correlation I calculate between sec A and the benchmarks is more clear. (E.g. Security A correlates 0.5 to Benchmark A, 0.3 to B, 0.7 to C independently of the benchmarks' correlation to each other).
Note: adding covariance to the list of measurements since it plays a role in beta and port. variance.