SPLICED CORRELATION: THEORY DEVELOPMENT

Jeffry Haber

Global Journal of Business Research, 2016, vol. 10, issue 1, 65-69

Abstract: Correlation is a common metric used in portfolio management. It describes the relative movement of two streams of data, allowing inference of how one will behave given the movement of the other. Often a significant correlation relationship (whether it be uncorrelated, positively correlated or negatively correlated) in the long-term is not replicated in shorter term periods. Worse, often the short-term correlation is contradictory to the long-term. Utilizing three sets of data, where the streams of two are interchanged to form one stream at varying points of time could allow the long-term correlation to be also replicated in the short-term. There remain various obstacles to overcome, such as scaling, determination of inflection points and the selection of the data streams. Those are left to be solved in future papers - this paper puts forth the theoretical justification for the concept of spliced correlation.

Keywords: Correlation; Spliced Correlation; Investing; Portfolio Management (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G17 G23 (search for similar items in EconPapers)
Date: 2016
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