Signal inference in financial stock return correlations through phase-ordering kinetics in the quenched regime

Ixandra Achitouv (), Vincent Lahoche and Dine Ousmane Samary
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Vincent Lahoche: DIASI (CEA, LIST) - Département Intelligence Ambiante et Systèmes Interactifs - LIST (CEA) - Laboratoire d'Intégration des Systèmes et des Technologies - DRT (CEA) - Direction de Recherche Technologique (CEA) - CEA - Commissariat à l'énergie atomique et aux énergies alternatives - Université Paris-Saclay
Dine Ousmane Samary: DIASI (CEA, LIST) - Département Intelligence Ambiante et Systèmes Interactifs - LIST (CEA) - Laboratoire d'Intégration des Systèmes et des Technologies - DRT (CEA) - Direction de Recherche Technologique (CEA) - CEA - Commissariat à l'énergie atomique et aux énergies alternatives - Université Paris-Saclay

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Abstract: Financial stock return correlations have been analyzed through the lens of random matrix theory to differentiate the underlying signal from spurious correlations. The continuous spectrum of the eigenvalue distribution derived from the stock return correlation matrix typically aligns with a rescaled Marchenko-Pastur distribution, indicating no detectable signal. In this study, we introduce a stochastic field theory model to establish a detection threshold for signals present in the limit where the eigenvalues are within the continuous spectrum, which itself closely resembles that of a random matrix where standard methods such as principal component analysis fail to infer a signal. We then apply our method to Standard & Poor's 500 financial stocks' return correlations, detecting the presence of a signal in the largest eigenvalues within the continuous spectrum.

Date: 2025-10-31
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Published in PLoS ONE, 2025, 20 (10), pp.e0334436. ⟨10.1371/journal.pone.0334436⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05410279

DOI: 10.1371/journal.pone.0334436

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