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Signal and Noise in Financial Correlation Matrices


  • Zdzislaw Burda
  • Jerzy Jurkiewicz


Using Random Matrix Theory one can derive exact relations between the eigenvalue spectrum of the covariance matrix and the eigenvalue spectrum of its estimator (experimentally measured correlation matrix). These relations will be used to analyze a particular case of the correlations in financial series and to show that contrary to earlier claims, correlations can be measured also in the ``random'' part of the spectrum. Implications for the portfolio optimization are briefly discussed.

Suggested Citation

  • Zdzislaw Burda & Jerzy Jurkiewicz, 2003. "Signal and Noise in Financial Correlation Matrices," Papers cond-mat/0312496,, revised Feb 2004.
  • Handle: RePEc:arx:papers:cond-mat/0312496

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    Cited by:

    1. Conlon, T. & Ruskin, H.J. & Crane, M., 2007. "Random matrix theory and fund of funds portfolio optimisation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(2), pages 565-576.
    2. Thomas Conlon & Heather J. Ruskin & Martin Crane, 2010. "Cross-Correlation Dynamics in Financial Time Series," Papers 1002.0321,
    3. Núñez-Mora, José Antonio & Mata-Mata, Leovardo, 2014. "Una aplicación de la teoría de matrices aleatorias para analizar la variación del rendimiento de diferentes commodities a lo largo del periodo 2000-2012," eseconomía, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 0(41), pages 7-20, segundo s.
    4. Conlon, T. & Ruskin, H.J. & Crane, M., 2009. "Cross-correlation dynamics in financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(5), pages 705-714.
    5. Eterovic, Nicolas A. & Eterovic, Dalibor S., 2013. "Separating the wheat from the chaff: Understanding portfolio returns in an emerging market," Emerging Markets Review, Elsevier, vol. 16(C), pages 145-169.
    6. Martins, André C.R., 2007. "Non-stationary correlation matrices and noise," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(2), pages 552-558.

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