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    The ETF correlation matrix is the web's first 'live' correlation matrix that
    gives us the ability to understand the cross-correlations on various markets,
    sectors and asset classes. It is a 37x37 matrix that utilizes a two year daily
    return series and is thus based off 1 million plus unique data points.  A new
    addition is the Top and Bottom 25 paired correlations.  A high pairwise
    correlation is a high Sharpe ratio proposition, while a low pairwise correlation
    scenario is a high Alpha potential.  The availability of large-scale computing
    power and the web as the new platform for information dissemination enables
    us to put this on the web, something that until recently was the preserve of
    specialized knowledge providers.

    Now we are making available the ETF Variance-Covariance matrix, based on
    daily returns.  We think that a longer interval period (such as monthly) results in
    information loss, especially in todays fast paced trading environment.  Legacy
    issues probably constrain the generation of high frequency Var-Cov matrices,
    we hope to provide unique value added by operating outside such parameters.

    These correlations* can be utilized to structure an optimal asset allocation
    framework, prevent redundant diversification, structure market-neutral spread
    trades, and control risk in a  portfolio.  
                                    
    * Correlations are subject to the well-known phenomenon of inter-temporal non-
    stationarity and sign inversion.  As such they are best utilized as an indicative
    and explanatory factor, rather than a predictive factor.

    Other research on a sample of advanced finance and mathematical topics is
    also presented here, for the interested viewer.  The Bootstrapping routine
    allows for repeated sampling to estimate a normal distribution from a non-
    parametric or small-size sample - a fully functional downloadable file written in
    Excel VBA is attached.  Such methodologies are utilized in our work to generate
    distributions for ETF's that have short trading histories.  This is essential for
    fast paced hedge funds and traders who cannot afford to exclude an asset just
    because it is a new issue.

    These are the views of Advanced Portfolio Solutions and are not to be
    construed as investment advise of any sorts.  This work is purely for the
    purposes of research and understanding financial market dynamics.  contact
    Pankaj Agrrawal, Ph.D. for clarification on any technical aspects of this
    research.

    A link to some of the top search phrases used in search engines to locate this content.

Research


    ETF Correlation Matrix
    (global markets,sectors, bonds, gold)
    With Top and Bottom 25 Pairwise Correlations for efficient Hedging