Cleaning correlation matrices

Bun, Bouchaud and Potters present a technique that allow cleaning in-sample noise from correlation matrixes

Data Matrix

The concept of correlations between different assets is a cornerstone of Markowitz's optimal portfolio theory, especially for risk management purposes (Markowitz 1968). In a nutshell, correlations measure the tendency of different assets to vary together, and it is well known that large losses at a portfolio level are indeed mostly due to correlated moves of its constituents (see, for example, Bouchaud & Potters 2003). Efficient and robust diversification is needed to alleviate such events.

CLI

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: