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Financial Markets and Portfolio Management

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01-05-2015

Handling risk-on/risk-off dynamics with correlation regimes and correlation networks

Authors: Jochen Papenbrock, Peter Schwendner

Published in: Financial Markets and Portfolio Management | Issue 2/2015

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Abstract

In this paper, we present a framework for detecting distinct correlation regimes and analyzing the emerging state dependences for a multi-asset futures portfolio from 1998 to 2013. These correlation regimes have been significantly different since the financial crisis of 2008 than they were previously; cluster tracking shows that asset classes are now less separated. We identify distinct “risk-on” and “risk-off” assets with the help of correlation networks. In addition to visualizing, we quantify these observations using suitable metrics for the clusters and correlation networks. The framework will be useful for financial risk management, portfolio construction, and asset allocation.

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Title: Handling risk-on/risk-off dynamics with correlation regimes and correlation networks
Authors: Jochen Papenbrock
Peter Schwendner
Publication date: 01-05-2015
Publisher: Springer US
Published in: Financial Markets and Portfolio Management / Issue 2/2015
Print ISSN: 1934-4554
Electronic ISSN: 2373-8529
DOI: https://doi.org/10.1007/s11408-015-0248-2

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