This is a summary of links featured on Quantocracy on Tuesday, 02/02/2021. To see our most recent links, visit the Quant Mashup. Read on readers!
When a correlation matrix is not a correlation matrix and what can be done about it [Portfolio Optimizer]Estimating how individual assets are moving together is an important part of many financial applications1 and the most commonly used measure for this is the Pearson correlation. Unfortunately, for a variety of reasons, what sometimes appears to be a correlation matrix is actually not a valid correlation matrix, which might prevent algorithms using such a matrix in input from providing meaningful
Understanding Variance Explained in PCA – Matrix Approximation [Eran Raviv]Principal component analysis (PCA from here on) is performed via linear algebra functions called eigen decomposition or singular value decomposition. Since you are actually reading this, you may well have used PCA in the past, at school or where you work. There is a strong link between PCA and the usual least squares regression (previous posts here and here). More recently I explained what does
The failure of anomaly indicators in finance [Mathematical Investor]Recent public reports have underscored a crisis of replicability in numerous fields of science: In 2012, Amgen researchers reported that they were able to replicate fewer than 10 of 53 cancer studies. In March 2014, physicists announced with fanfare that they had detected evidence of gravitational waves from the inflation epoch of the big bang. However, other researchers were unable to