[R-SIG-Finance] Two-Sample t-Test: paired vs. unpaired

[Andreas Klein]

Hello.

I got stuck with a simple decision problem:

I have two time series of utilities of portfolio returns. The first portfolio consists of 100 stocks and the second portfolio consists of 10 of the 100 stocks.

The correlation coefficient between the portfolio returns is almost zero.

When I produce idependently from each other the utility time series of each of the two portfolios I get a correlation coefficient of around 0.8

=> t.test(utility_series1, utility_series2, paired=???)

The facts: Both are independent at the beginning, but get highly correlated in the end. Therefore the results of t.test() strongly depends on the choice of paired vs. unpaired.

But I cannot decide whether I should treat the series as independent or not.

Any suggestions?


Regards,
Andreas