 Expressions of market-based correlations between prices and returns of two assetsMPRA Paper from University Library of Munich, Germany Abstract: This paper derives the expressions of correlations between prices of two assets, returns of two assets, and price-return correlations of two assets that depend on statistical moments and correlations of the current values, past values, and volumes of their market trades. The usual frequency-based expressions of correlations of time series of prices and returns describe a partial case of our model when all trade volumes and past trade values are constant. Such an assumptions are rather far from market reality, and its use results in excess losses and wrong forecasts. Traders, banks, and funds that perform multi-million market transactions or manage billion-valued portfolios should consider the impact of large trade volumes on market prices and returns. The use of the market-based correlations of prices and returns of two assets is mandatory for them. The development of macroeconomic models and market forecasts like those being created by BlackRock's Aladdin, JP Morgan, and the U.S. Fed., is impossible without the use of market-based correlations of prices and returns of two assets. Keywords: correlation of prices and returns of two assets; random trade values and volumes; statistical moments (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:123009 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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