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Theory-Implied Correlation Matrix (TIC)

URL
https://www.youtube.com/watch?v=yhR1zLQIu9g
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141
Description
Learn more at: https://hudsonthames.org/portfoliolab/ A problem of empirical correlation matrices is that they are purely observation-driven, and do not impose a structural view of the investment universe, supported by economic theory. The TIC algorithm is aiming to estimate a forward-looking correlation matrix based on economic theory. The method is using a theoretical classification of assets (hierarchical structure) and fits the empirical correlation matrix to the theoretical structure. TIC algorithm is described in Estimation of Theory-Implied Correlation Matrices by Marcos Lopez de Prado.
Rating
5
Name
Hudson & Thames
Date
2022/05/25
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