[R-SIG-Finance] making sense of 100's of funds
patrick at burns-stat.com
Sun Aug 19 11:23:38 CEST 2007
paul sorenson wrote:
>Probably not unsurprisingly, the correlation between the SP200 and the
>global share fund daily returns goes up (from 0.16 to 0.42) when I
>insert a 1 day lag.
There are asynchrony issues with global data, which definitely affect
the correlation (it is too low). Presumably the global return series has
asynchrony issues all by itself.
The working paper for Burns, Engle and Mezrich (1998) is available
That paper talks about the effects of asynchrony and proposes a
method of backing out data without asynchrony. Our investigation
suggested that using weekly data is adequate for avoiding asynchrony
>http://www.metrak.com/tmp/exch10.png has plots produced by ccf().
>Brian - if I want to look at returns over a different period using
>PerformanceAnalytics when the base data is daily, is the normal strategy
>just to undersample prices before calling CalculateReturns?
>I am guessing that the correlation of the SP200 and global share fund
>would increase when looking at a longer time period. I also want to
>compare it with some other data which comes out monthly.
>BTW sorry if I am boring you guys with what must be very basic stuff -
>just tell me.
Asynchrony is neither basic (i.e., well-studied) nor very well appreciated.
I don't vote this message boring.
patrick at burns-stat.com
+44 (0)20 8525 0696
(home of S Poetry and "A Guide for the Unwilling S User")
>Brian G. Peterson wrote:
>>paul sorenson wrote:
>>>I ran a pairs plot on the daily fund returns as well as calculating
>>>the correlation coefficient (Pearson).
>>>The pairs plot is reproduced at http://www.metrak.com/tmp/exch09.png
>>>and unless I am missing something, some of these "look" significant
>>>whereas some don't.
>>The pairs plot will certainly show you funds that closely track the
>>index. A quick check of cor() (or the Pearson correlation coefficient)
>>and CAPM.alpha() will do the same. A pairs plot (and to a lesser extent
>>correlation) won't show you anything about systematic out-performance or
>>under-performance, while alpha is a good indicator if the benchmark you
>>choose is indicative of the investment universe of the fund. Another
>>good indicator is Sortino's Upside Potential Ratio, especially if you
>>choose the benchmark index standard deviation as your MAR.
>>CAPM alpha will not be a good indicator if you choose an index that is
>>different from the investment style of the fund. For example, using a
>>SP200 index with a fixed income fund wouldn't make any sense.
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