Someone emailed me recently and asked about how APT uses random matrix theory in their factor model. Another question I …Continue reading »

Following on from the previous post here is an R function for visualising correlations between the explanatory variables in your data set. An interesting example is the North Carolina Crime data set that comes with the plm package. This has the following continuous variables: crmrte crimes committed per person prbarr probability of arrest prbarr probability … Continue reading...

I was searching for open data recently, and stumbled on Socrata. Socrata has a lot of interesting data sets, and while I was browsing around, I found a data set on federal bailout recipients. Here is the data set. However, data sets on Socrata are not always the most recent versions, so I followed a...

I was searching for open data recently, and stumbled on Socrata. Socrata has a lot of interesting data sets, and while I was browsing around, I found a data set on federal bailout recipients. Here is the data set. However, data sets on Socrata are not always the most recent versions, so I followed a link to...

This is a quick post to address comments raised in the Time Series Matching post. I will show a very simple example of backtesting a Time Series Matching strategy using a distance weighted prediction. I have to warn you, the strategy’s performance is worse then the Buy and Hold. I used the code from Time

Equal risk contribution of assets determines the asset weights given the variance matrix. How sensitive are those weights to the variance estimate? Previously The post “Risk parity” gave an overview of the idea. In particular it distinguished the cases: the assets have equal risk contribution groups of assets have equal risk contribution A key difference … Continue reading...

Stumbling blocks on the trek from theory to practical optimization in fund management. Problem 1: portfolio optimization is too hard If you are using a spreadsheet, then this is indeed a problem. Spreadsheets are dangerous when given a complex task. Portfolio optimization qualifies as complex in this context (complex in data requirements). If you are … Continue reading...

2011 was a volatile year, no doubt about that, but was it exceptionally so from a historic point of view? To quantify the volatility, I used the Dow Jones Industrial average, which goes back to 1928 on Yahoo Finance: A volatile year no doubt, but once again confirming the fact that, in markets behaviour at