On the way to another destination, I found some curious behavior with average correlations. The data Daily log returns from almost all of the constituents of the S&P 500 for years 2006 through 2011. The behavior Figure 1 shows the actual mean correlation among stocks for the set of years and the mean correlation with default settings for the Ledoit-Wolf and statistical factor model functions in the BurStFin R package. Figure 1: Mean correlations within years: sample correlation (gold),...

New events CambR (Cambridge UK R user group) 2012 May 29 6:30 PM for 7:00 PM start. Pat Burns “Inferno-ish R” Abstract: While R is wonderful, it is not uniformly wonderful. We highlight a few things generally found to be confusing, and outline the forces that have driven such imperfections. Markus Gesmann “Interactive charts with R and GoogleVis” Abstract: The talk will give an overview of how R and googleVis can be used to create interactive charts with the Google...

US large cap market returns. There is an additional feature in the plots this week, a brief explanation is in the update to the post “Replacing market indices”. Fine print The data are from Yahoo Almost all of the S&P 500 stocks are used The initial post was “Replacing market indices” The R code is in marketportrait_funs.R Subscribe to the Portfolio Probe blog by Email

There have been some issues with the sign-up process for the Portfolio Probe newsletter and the Portfolio Probe user’s list.  The issues may or may not be in the past tense. The way the process is supposed to work is: You sign up for one or both lists You get a message from us saying we heard you, and wondering if you really meant to sign up for getting the blog via email instead Mailchimp sends you an email for you to confirm that you want on the list(s) Step 3 is the key step, and has...

Real Soon Now Thalesians (London) 2012 May 16 Matthew Dixon “A Bayesian Approach to Discovering Private Companies for Private Equity Investments”. Details of the event. Thalesians (New York) 2012 May 17 Attilio Meucci “Liquidity-, Funding- and Market-Risk” Details of the event. Other new events Thalesians (San Francisco) 2012 May 30 Jeremy Evnine “Accidental Quant”. I became a “quant” in September of 1980, purely by accident. This led me to a 30-year career...

The minimum variance portfolios have slightly reduced correlations to assets in weight-constrained portfolios. Previously “Portfolio diversity” introduced the topic of asset-portfolio correlations. It also generated four sets of long-only random portfolios as of the start of 2011 using constituents of the S&P 500: exactly 20 names, weights between 1% and 10% exactly 200 names, weights between 0.1% and 1% exactly 20 names, maximum asset-portfolio correlation of 60% exactly 200...

How many baskets are your eggs in? Meucci diversity Attilio Meucci directly addresses the adage: Don’t put all your eggs in one basket. His idea is to think of your portfolio as a set of  subportfolios that are each uncorrelated with the rest.  If your portfolio can be configured to have a lot of roughly equally weighted subportfolios, then your portfolio is well diversified. Harald Lohre and Carsten Zimmer just put out a paper “Diversified Risk Parity Strategies for Equity...

US large cap market returns. Fine print The data are from Yahoo Almost all of the S&P 500 stocks are used The initial post was “Replacing market indices” The R code is in marketportrait_funs.R Subscribe to the Portfolio Probe blog by Email

US large cap market returns. Fine print The data are from Yahoo Almost all of the S&P 500 stocks are used The initial post was “Replacing market indices” The R code is in marketportrait_funs.R Subscribe to the Portfolio Probe blog by Email

Guiding a ship, it takes more than your skill Spark David Rowe’s Risk column this month is about data leverage. The idea is that you are leveraging your data if you are using it to answer questions that are too demanding of information. The piece reminded me of a talk that Dave gave a few years ago, and he was kind enough to remind me of his terminology. One of his phrases is “statistical entropy”.  Very homiletic — I can envision one or more dissertations written on...