Computation of Theory-Implied Correlation Matrices: Overview and Example
In this short post, I will provide an overview of the TIC algorithm1 introduced by Marcos Lopez de Prado in his paper Estimation of Theory-Implied Correlatio...
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The Effective Number of Bets: Measuring Portfolio Diversification
Many different measures of portfolio diversification have been developed in the financial literature, from asset weights-based diversification measures like ...
Correlation Matrix Stress Testing: Shrinkage Toward the Lower and Upper Bounds of a Correlation Matrix
I previously described on this blog an intuitive way of performing stress tests on a correlation matrix, which consists in shrinking a baseline correlation ...
Adjusted Prices Without Look-Ahead Bias
When backtesting an investment strategy, that is, when simulating an investment strategy using historical prices to test how this strategy would have behaved...
Mean-Variance Optimization in Practice: Subset Resampling-based Efficient Portfolios
In a previous post, I introduced near efficient portfolios, which are portfolios equivalent to mean-variance efficient portfolios in terms of risk-return bu...