Signal and Noise in Financial Correlation Matrices

Zdzislaw Burda and Jerzy Jurkiewicz

Papers from arXiv.org

Abstract: Using Random Matrix Theory one can derive exact relations between the eigenvalue spectrum of the covariance matrix and the eigenvalue spectrum of its estimator (experimentally measured correlation matrix). These relations will be used to analyze a particular case of the correlations in financial series and to show that contrary to earlier claims, correlations can be measured also in the ``random'' part of the spectrum. Implications for the portfolio optimization are briefly discussed.

Date: 2003-12, Revised 2004-02
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Published in Physica A 344, 67 (2004)

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