[R-SIG-Finance] making sense of 100's of funds

[paul sorenson]

Patrick,

That is an interesting paper, in this case I was asking myself the 
question, "if I know that today's Melbourne prices are correlated to 
yesterdays  NY prices, is there a possibility of taking advantage of 
that?"  That is, not so much from putting a portfolio together, but 
daily investment decisions.

cheers

Patrick Burns wrote:
> 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.
>>  
>>
> 
> Careful.
> 
> 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
> at http://www.econ.ucsd.edu/papers/dp97.html
> 
> 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
> effects.
> 
>> 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.
>>
>> cheers
>>
>> 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 Burns
> patrick at burns-stat.com
> +44 (0)20 8525 0696
> http://www.burns-stat.com
> (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.
>>>
>>> Cheers,
>>>
>>>   -Brian
>>>   
>>
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>>