Sun, Dec 21, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
New Managers December 2012

Peter Urbani' Statistics - Visualising dependence

Visualising dependence This month we look at the application of http:// en.wikipedia.org/wiki/Graph_(mathematics) graph theory to attempt to better visualise these connections. Our ultimate aim is, as always, to better understand the underlying dynamics and dependencies between assets in order to be able to better diversify our portfolios against the next crisis. In particular, we examine the use of http:// en.wikipedia.org/wiki/Partial_correlation Partial Correlation to help deepen our understanding of the co-relationships that exist and also to help filter out extraneous or spurious correlations. The Partial Correlation Matrix is calculated from the inverse matrix of either the standard Pearson product moment Correlation Matrix or the Variance- Co-Variance Matrix, preferably after ‘robustifying’ it through some or other form of shrinkage towards the global mean. In its univariate form, it can be thought of as the correlation of the residuals of X and Y after subtracting the returns of a third variable Z, from both. A Dependency matrix is then constructed by deducting the Partial Correlation from the Pearson Correlation to help identify those components with the highest level of interaction. It is hoped that the resulting matrix is more representative of the ‘true’ dependencies. The Dependency Matrix is then converted to an adjacency matrix, typically after further threshold filtering, and then to a Directed Adja......................

To view our full article please login

This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
New Managers
New Managers
New Managers

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Big hedge funds win again on PetSmart, Riverbed, RBS sells real estate loans to hedge fund Cerberus, Talisman energy speculation: Which hedge funds could benefit?[more]

    Big hedge funds win again on PetSmart, Riverbed From CNBC.com: Another week, another set of wins for activist investors. On Sunday, pet supply retailer PetSmart agreed to the largest leveraged buyout of the year at $8.7 billion. Hedge fund firm JANA Partners had been pushing for a sale a

  2. Outlook - Hedge fund manager who remembers 1998 rout says prepare for pain, Bond guru Bill Gross predicts U.S. economic growth to dip to 2%[more]

    Hedge fund manager who remembers 1998 rout says prepare for pain From Bloomberg.com: Stephen Jen landed in Hong Kong in early January 1997 as Morgan Stanley’s newly minted exchange-rate strategist for Asia. He was soon working around the clock when investors began targeting the region’s

  3. Investing - Hedge funds get boost from healthcare in 2014, Paulson & Co takes stake in Salix on heels of inventory issues[more]

    Hedge funds get boost from healthcare in 2014 From Valuewalk.com: The healthcare sector started the year on a turbulent note, as stocks of many major biotechnology companies were battered. However, most of the players in this sector have bounced back. The BarclayHedge Healthcare & Biotec

  4. Opalesque Exclusive: U.S. legal receivables fund launched in August[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Investing in asset-backed receivables is a strategy that has been an integral part of the alternative investment space within the overall fixed income asset c

  5. Comment - High fees and low performance hit hedge funds[more]

    From FT.com: Disenchantment over high fees and lackluster performance may finally be turning the tide against hedge funds, fresh data suggest. Despite generally weak returns since the global financial crisis, hedge funds have enjoyed positive net inflows every year since 2010. This helped assets und