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Spliced Correlation: Theory Development

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  • Jeffry Haber

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.

Suggested Citation

  • Jeffry Haber, 2016. "Spliced Correlation: Theory Development," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 10(1), pages 65-69.
    • Handle: RePEc:ibf:gjbres:v:10:y:2016:i:1:p:65-69
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    More about this item

    Keywords

    Correlation; Spliced Correlation; Investing; Portfolio Management;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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