Correlations Between Securities and Markets

Florin Cornel Dumiter () and Florin Marius Turcaș ()
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Florin Cornel Dumiter: Vasile Goldis Western University of Arad
Florin Marius Turcaș: Romanian Valuators Association

Chapter Chapter 3 in Technical Analysis Applications, 2023, pp 49-69 from Springer

Abstract: Abstract “Do not put all the eggs in one basket” is the prudential principle of reducing non-systemic risks. But how should a rational portfolio be built? How do we choose from thousands of companies the least risky and potentially profitable? Theorists use VaR (Value at Risk)—is it representative, as long as the distribution of daily results is not Gaussian? Is intermarket analysis (Murphy) an alternative solution? We will look for the answer to these questions, exploring various theories and practical results. It seems highly important for us if we establish that two titles vary similarly. Unlike modern portfolio theory (which does not distinguish between 2 perfectly correlated securities), we believe that including both in the portfolio reduces non-systemic (specific) risks and, more importantly, allows tracking one and investing in the other, if developments are delayed. Other investment options: futures, vanilla and exotic options, certificates, combined strategies, and arbitrage. How technical analysis helps a complex investment approach.

Keywords: Non-systemic risks; Intermarket analysis; Modern portfolio theory; Investment options; Securities (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-27416-9_3

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DOI: 10.1007/978-3-031-27416-9_3

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