This is a summary of links featured on Quantocracy on Thursday, 10/22/2020. To see our most recent links, visit the Quant Mashup. Read on readers!
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Correlation and correlation structure (4) – asymmetric correlations of equity portfolios [Eran Raviv]Here I share a refreshing idea from the paper Asymmetric correlations of equity portfolios which was published in the Journal of financial Economics, a top tier journal in this field. The question is how much the observed conditional correlation on the downside (say) differs from the conditional correlation you would expect from a symmetrical distribution. You can find here an explanation
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Building Factor Portfolios Based with the Lowest Correlations [Alpha Architect]The two basic rules of asset allocation are: i) identify assets with positive expected payoffs, and ii) ensure that the assets are not too highly correlated, so that diversification benefits can be harvested. Although the rules are simple, implementation is often complex. Equities have a positive expected return over the long-term as stocks represent risk capital in for-profit companies. Bonds pay