[R-SIG-Finance] making sense of 100's of funds
sf at metrak.com
Mon Aug 20 00:26:23 CEST 2007
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.
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.
> 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
>> 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 Burns
> 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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