48
votes
Accepted
Is R being replaced by Python at quant desks?
My deal is HFT so what I care about is
read/load data from file or DB quickly in memory
perform very efficient data-munging operations (group,transform)
visualize easily the data
I think is is ...
- 1,238
31
votes
Is R being replaced by Python at quant desks?
Instead of wild guesses about R's/python's future in the community, here some facts:
The following query on StackExchange Data Explorer counts the number of questions that have ...
- 481
25
votes
Is R being replaced by Python at quant desks?
This is interesting because I see another trend: Matlab is being replaced by R, but I guess this is another story.
I use R for my academic (I am also teaching this stuff) as well as my consulting ...
- 26.7k
23
votes
Is R being replaced by Python at quant desks?
I've used both R and Python with Pandas in a professional quantitative financial work to do both large and small scale projects. I would strongly recommend Python with Pandas over R for most new ...
- 1,541
22
votes
How did James Simons clinch that security prices didn't look random?
I'm sure Simons, as a first-rate pure and applied mathematician, had sufficient understanding of statistics to detect market inefficiencies and anomalies. As far as I know, the development and ...
- 3,240
13
votes
Accepted
Why shrink the covariance matrix?
Have a look at this classic paper:
Honey, I Shrunk the Sample Covariance Matrix by O. Ledoit and M. Wolf
The abstract answers your question already:
The central message of this article is that no ...
- 26.7k
13
votes
Is R being replaced by Python at quant desks?
For data analysis, particularly for large data analysis project, pretty much most of the top quant hedge funds and a lot of the banks are using Python (over R) for a couple of reasons but many still ...
- 782
11
votes
Accepted
What is the total correlation between assets in a portfolio?
This is indeed an interesting question.
According to this website, a paper by Goldman Sachs [Tierens and Anadu (2004)] proposes three alternative methods for estimating average stock correlations:
...
- 26.7k
10
votes
How did James Simons clinch that security prices didn't look random?
Jim Simons' initial intuitions about nonrandomness were probably driven by the very psychological/evolutionary predispositions to want to find the hidden meaning within noise that affect humanity in ...
- 2,825
9
votes
Should I use an arithmetic or a geometric calculation for the Sharpe Ratio?
I think this is a no-brainer. Only log-returns make sense. The average return can only be computed by averaging the sum of individual log returns. Taking the average of standard (relative) returns ...
9
votes
Book recommendation for time series analysis
I would suggest Time Series Analysis by James Douglas Hamilton
9
votes
Accepted
Correlation between stock prices given correlation between returns
We can obtain a closed-form expression for price correlation given (log) return correlation when the two stocks follow geometric Brownian motion:
$$S_1(t) = S_1(0)e^{(\mu_1- \frac{1}{2} \sigma_1^2)t}...
- 3,240
8
votes
Calculate correlation between two sub portfolios and the combined portfolio
To clarify notation, you have an universe of $n=2000 \space$ stocks and two portfolio vectors $\mathbf{a},\mathbf{b}\in\mathbb{R}^{n}$ with $\left\|\mathbf{a}\right\|_{1}=\left\|\mathbf{b}\right\|_{1}...
- 473
8
votes
Why shrink the covariance matrix?
The estimation of a covariance matrix is unstable unless the number of historical observations $T$ is greater than the number of securities $N$ (5000 in your example). Consider that 10 years of data ...
- 3,240
8
votes
What is the total correlation between assets in a portfolio?
I just want to add to vonjd's answer some info on the comparison of the 3 methods. This is too big for a comment so I'm posting as a separate answer but please upvote his answer, not mine.
Do the ...
- 741
7
votes
Why shrink the covariance matrix?
Transaction costs - even for banks, funds etc, every trade has an associated cost, so if you would be buying a small number of shares, it's probably cheaper to carry the risk and not make those small ...
- 3,589
7
votes
What are the canonical books for statistics applied to finance?
I think a good book to start in your case is:
Attilio Meucci: Risk and Asset Allocation
I once had a seminar held by Attilio that was based on the book and it blew my mind. The book is very ...
- 26.7k
7
votes
What are the canonical books for statistics applied to finance?
Elements of Statistical Learning by Hastie, Tibshirani and Friedman is one of the most-cited books for your purpose. Although it does not have any direct applications to Finance, this is definitely a ...
- 289
7
votes
Predict the behavior of a time series (P&L trading desk)
Without seeing your trading desk's P&L it's impossible to say whether it is predictable or not. But here are a few thoughts -
There's no reason to think that it isn't predictable. In general, ...
- 5,603
6
votes
Accepted
Why do I have a statistically significant slope regressing R(t) on R(t-1)
Why do you have 16180 observations? Is this daily data over 64 years or higher frequency data? I am guessing so by the magnitude of the intercept. At any rate, your test power would be huge with this ...
- 2,084
6
votes
How to fit ARMA+GARCH Model In R?
This should walk you through what you are looking for:
https://www.quantstart.com/articles/Generalised-Autoregressive-Conditional-Heteroskedasticity-GARCH-p-q-Models-for-Time-Series-Analysis
https://...
- 207
6
votes
How to fit ARMA+GARCH Model In R?
If you wander about the theoretical result of fitting parameters, the book GARCH Models, Structure, Statistical Inference and Financial Applications of FRANCQ and ZAKOIAN provides a step-by-step ...
- 61
6
votes
Kalman Filter Equity Example
The following paper gives you a step-by-step presentation of how to use the Kalman filter in an application in a pricing model framework for a spot and futures market. Everything is explained using ...
- 26.7k
6
votes
Is R being replaced by Python at quant desks?
For the tasks listed, both Python and R perform very well. There are some packages in Python not in R and vice versa. My solution for this is to simply call R from Python. This allows for the best of ...
- 1,968
6
votes
Is R being replaced by Python at quant desks?
Also in the high frequency / medium frequency field here.
I received a "mixed" consensus regarding the use of R and its prevalence in the field (specifically HFT). Speaking with someone who works in ...
- 1,132
6
votes
Accepted
How to calculate the JdK RS-Ratio
Reading what I have, I can only offer a guess.
1: Let's say you're looking at 9 sectors compared to \$SPX on a daily chart. Foreach sector, compute relative closing price: 100 * Sector/\$SPX
2: It ...
- 76
6
votes
Accepted
Interpreting Eigenvalues of Co-variance Matrix
What you basically do here is a Principal Component Analysis (PCA). A good starting point in the financial sphere is
Managing Diversification by Attilio Meucci (2010)
Page 3:
"The most natural ...
- 26.7k
6
votes
How did James Simons clinch that security prices didn't look random?
I will disagree with RPL's answer - Simons is not particularly known as an applied mathematician, but he did work for some time at the Institute for Defense Analysis [IDA] (he was fired for ...
- 341
6
votes
Accepted
Shrinkage of the Sample Covariance matrix, theory
Yes. It comes from a core theorem of statics, Stein's Lemma. It shook the foundations of the field of statistics when it came out. It blew up an entire way of viewing mathematical statistics. ...
- 3,976
5
votes
Why shrink the covariance matrix?
Go ahead and compute a sample covariance matrix with 5,000 stocks on a few years (or less) of daily or monthly returns data. This can be done almost instantly on a modern computer. There is a very ...
- 537
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