# Questions tagged [correlation]

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

372 questions
Filter by
Sorted by
Tagged with
124 views
+50

### Calculation of break-even correlation for diversification effect in N-assets case?

I'm thinking about a generalization of the following case: for 2 assets, there is a diversification effect as soon as i obtain a positive weight for the minimum-variance portfolio in the asset with ...
29 views

### A term to compare 2 stocks based on simultaneous trending and ranging characteristics

There a 2 stocks called A and B. We take a look at the daily chart of both stocks over the last 1 year. On 90% of the days A and B both trended or at least one of A or B trended. On 10% of days both ...
40 views

### Correlation risk between protection (seller) and reference entity

I am learning about central clearing. In my understanding, CDS are usually cleared via central clearing. But at the same time I heard that in case of too much correlation such as US bank selling ...
51 views

### LMM (Libor market Model) Correlation Calibration

I use a LMM model from a well known vendor, using a SOFR swap curve and SOFR swaptions. The calibration set include many/all of the ATM swaptions from 1m-1y to 30y-30y and I get a very good fit for ...
136 views

### How can this problem be defined formally?

Let's consider a straightforward example in which I possess a portfolio consisting of two stocks: $R(t) = S_{1}(t) \cdot x_1 + S_{2}(t) \cdot x_2,$ Here, $t$ represents the time index, $R(t)$ ...
99 views

130 views

### How would I find correlation / association of different time series datapoints with a target variable?

the title is a bit confusing. Functionally, I have a dataset of N stocks containing options information, short information, and earnings information for each of the N stocks. For each unique stock in ...
437 views

67 views

### Two sound waves in phase at different lags with varying signs?

I have two interest rate time series but want to think of this as sound signals for thought purposes. Imagine you have two time series of audio signals. You run a time lagged cross correlation ...
221 views

### Interpreting the average correlation figure in Pozzi et al. (2013) paper

Has anyone read the paper "Spread of risk across financial markets:better to invest in the peripheries" by F. Pozzi, T. Di Matteo & T. Aste? If so, how do you interpret equation (1) in ...
1 vote
51 views

### Estimation of copula for discrete random variable

I'm interested in the estimation of parameter of copula for discrete random variables. The problem is described as follow: I have 30 discrete random variables $X_1,.., X_{30}$, each random variable is ...
99 views

### Lemma (maybe) to imply the sign of the sensitivity to correlation

Can anybody please help me to understaind if this result is true ? Let $\pi=\mathbb{E}\left(f(X_{T})g(Y_{T})\right)$ where $f$ and $g$ are increasing functions. Hence, $\pi$ is increasing with respect ...
1 vote
487 views

### Simulating Correlated Stock Returns in Python (SciPy)

I'm looking to generate stock returns with inter-stock correlation in Python. However, the output is not behaving properly and may have accidental temporal correlation causing issues. This code is ...
700 views

### Kelly Criterion for Multiple Simultaneous Correlated Bets [closed]

I am looking for an equation for the optimal fractional bet sizing for N number of simultaneous correlated bets. I am looking specifically for an equation for binary bets, but an equation for bets ...
1 vote
276 views

### How to simulate correlated stock prices (not returns)

Suppose we have two stocks following GBMs. Drift and volatility are calculated based on historical data. Furthermore the stocks are assumed to be correlated (i.e. they move together, if stock 1 goes ...
170 views

### GBM drift when simulating correlation betwenn GBM with Cholesky Decomposition

I am currently trying to simulate correlated GBM paths and I found the Cholesky Composition for it. From my understanding, the Cholesky Decomposition can be used to create correlated random variables ...
89 views

### Examining the dependence of the fractional difference parameter in ARFIMA(0,d,0) vs bar size for Realized Volatility

Realized volatility is a long-memory process and so I fitted an ARFIMA(0,d,0) to log(RV15) where RV15 is realized volatility calculated from 15-min bars. I proceeded to examine how changing the bar ...
2k views

### Information Coefficient (IC) Formulae Differences

I am learning about Fundamental Law of Active Management, and there seems to be two different Information Coefficient (IC) formulae presented. Though I myself am not a CFA candidate, these appear to ...
843 views

### How to properly calculate the average across multiple correlations?

I'm trying to obtain an average across 3 correlations. Using Python, I obtain these correlations with: corr = df.apply(lambda s: df.corrwith(s)) which outputs: <...
183 views

### Beginner's resources on copulas and impact of correlation on loan defaults?

I'm hoping this question is not too banal or off-topic for this forum. Could you please help me understand / point me towards some resources on the impact of correlation on loan defaults? First ...
176 views

### Correlation between corporate bonds and treasury

What aspects decide the correlation between US corporate bonds and US treasury ? I was told that some corporate bonds are more sensitive to treasury than others. Sectors or maturity?
580 views

### Find k of n assets that "minimize" the correlation matrix

I'm trying to find an efficient way to select $k$ from $n$ risky assets that are the least correlated with each other. I know that I can perform a brute-force search of all $k$-sized combinations of ...
1 vote
88 views

### How to extract informative value from correlations of assets? Subadditivity of correlation calculation an issue

I was reading Nassim Taleb's Paper: Fooled by Correlation and found it very informative. I had always struggled with finding value in correlation in Finance, especially seeing a lot of bad ...
55 views

### Hedge 3 securities against 3 other securities

I have a portfolio of 6 securities, 3 long 3 short. I need to hedge them against each other so directional exposure = 0. How would I decide how to weight each security? Is there a model to do this?
218 views

### Contribution to Mahalanobis Distance

I am using Mahalanobis Distance to measure abnormal behavior within a portfolio consisting of a handful of general asset types, and am trying to figure out how to decompose this measurement into ...