Fri, Mar 23, 2018
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:// 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:// 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. John Paulson, once the industry's largest hedge fund, to return some investors' money[more]

    Komfie Manalo, Opalesque Asia: John Paulson is reported to be retuning some of his investors' money as a number of his hedge funds continue to suffer setbacks, reports

  2. Institutional Investors - Overdrawn pension fund scores gains[more]

    From Investments in big banks, pawn shops and rolling papers helped boost public safety workers' underfunded pensions this past calendar years, according to newly released figures. After recording middling returns in recent years, the Police & Fire Pension Fund (P&F) notched

  3. Activist Investors - The seven most undervalued stocks in Larry Robbins' portfolio, Stamford hedge fund still seeking shakeup of Taubman board[more]

    The seven most undervalued stocks in Larry Robbins' portfolio From ...On February 14th, Larry Robbins' firm Glenview Capital Management filed its quarterly Form 13F regulatory filing. The firm's stock portfolio totals $18.5 billion with 58 positions according to the latest

  4. Hot hedge fund loses 21% after bet on volatility goes wrong[more]

    From In December, Shahraab Ahmad shared with his hedge fund clients the principle that helped him trounce peers for two turbulent decades: steer clear of the crowd. He'd turned $50 million into an operation with more than $700 million over three years and delivered market-beating retu

  5. Opalesque Exclusive: Northern Trust builds on blockchain-backed private equity solution[more]

    Bailey McCann, Opalesque New York: Private equity clients at Northern Trust can now carry out audits of private equity lifecycle events directly from the blockchain. Northern Trust, working with PwC and other audit firms in Guernsey, has added this feature to its existing solution set for private