correlation

  • News

    Risk-On, Risk-Off, Risk-Of-Firing

    Oh, the world. Go read Jeremy Grantham’s GMO quarterly letter; as always it’s pretty fun. Then go read this HSBC report that Paul Murphy wrote about on Alphaville. These are things you probably know already but are worth remembering. First, Grantham: The central truth of the investment business is that investment behavior is driven by […]

    / Apr 19, 2012 at 7:10 PM
  • Are these NYSE traders? I don't care. I love this picture.

    News

    The Smart Indexes Are Even Worse Than The Dumb Ones*

    You may have heard that the Dow hit 13,000 today before subsiding to a shameful 12,965.69. You may not have heard this, or cared, because the Dow is for morons, being a price-weighted index of thirty semi-random companies that, gah, aren’t even “industrial” any more.** There are alternative theories but those theories are wrong:

    Joe Weisenthal in defense of the Dow has been noting its very high correlation with other, broader, more sensible indexes. I see this as further undermining the Dow’s legitimacy. If it’s very different methodology were leading to some kind of meaningfully different result, then we could perhaps argue that it’s adding value in some kind of way. But instead what’s going on is that the Dow’s creators are hand-picking which stocks to include in the index specifically with an eye toward constructing an index that mirrors the other, better indexes out there. Apple and Google, for example, aren’t in the Dow and aren’t doing to get in any time soon because their very high share prices would skew the index in weird ways. This just goes to show that the Dow’s creators already “know” the right answer (from looking at the S&P 500 and the Wilshire 5000) and then are trying to assemble an index to create the predetermined result.

    Maybe! An alternative theory is maybe suggested by [Occam’s razor and] this piece from the Journal this weekend about index funds that I just loved and so am now going to inflict on you at unnecessary length:

    / Feb 21, 2012 at 6:46 PM
  • News, Private Equity

    Most, Least Passive Ways Of Investing In Equity Getting Increasingly Close To Each Other

    Goldman Sachs has a piece of research out today on ETFs, billed as sort of “ETFs for dummy portfolio managers who need to start understanding them.” It’s worth a read if you can get it, with a decent overview of questions that it is probably possible to think too hard about, like whether 400% short […]

    / Jan 6, 2012 at 2:23 PM
  • News

    “Markets Were Up Today Because They Were Down Yesterday”

    If you read only one thing about ancient fire management methods and modern volatility, it should be this report by Chris Cole of Artemis Capital Management. There is much goodness here that others have discussed. But perhaps the most interesting for the current world is the move from positive to negative serial correlation in stock […]

    / Oct 7, 2011 at 2:08 PM
  • News

    Goldman Would Be Happy To Take Some Correlation Off Your Hands

    Goldman Sachs Portfolio Strategy Research has a fascinating research piece out today on equity correlation markets. It does good work as a piece of research because (1) if you like equity derivatives, it’s got all sorts of fun charts and technical stuff and (2) if you don’t, it’s got a hard sell: trade equity corr […]

    / Sep 8, 2011 at 3:39 PM
  • News

    Only Moderate Correlation In Conclusions Of Articles About High Correlation

    Correlations between and among asset classes tend to go way up in periods of stress, and so it should come as no surprise that Biblical events have, um, correlated with record correlations among stocks. Here’s the chart from Goldman’s David Kostin: Really high correlations make trading really easy! All you have to do is get […]

    / Aug 29, 2011 at 5:09 PM
  • News

    Today in Visual Display of Quantitative Information (Nerdy)

    Zero Hedge points out this awesome chart in an otherwise kind of back-test-eriffic Stanford paper on credit-equity correlation trading: The chart graphs 2003-2010 investment grade credit spreads (left axis) versus the S&P (bottom axis), with the size of the circles corresponding to the level of the VIX volatility index and the colors distinguishing the year […]

    / Jul 13, 2011 at 12:06 PM

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