This presentation / project is about correlation coefficients used as the clustering measure.
File needed to see the correlation coefficients and bi-monthly returns:
Address in the presentation the following:
1) Given correlation coefficient from https://mathworld.wolfram.com/CorrelationCoefficient.html
A) What is the meaning of correlation coefficient between the two set of stocks prices?
B) Show why the correlation coefficient between the set of prices A and set of prices B is the same as the correlation coefficient between the set of prices B and set of prices A.
2) After loading returnAstcBiMonthlyEG1.mat in Octave, you’ll have stocks with bi-monthly returns of above 0.009 :
CC -> correlation coefficients between the stock returns,
RTRS -> bi-monthly returns (rows) for 412 stocks (columns)
A) Comment the correlation coefficients based on bi-monthly returns among 412 stocks shown in the figure P5_CC_eg1.pdf
B) Assuming that clusters are created by putting all the stocks whose correlation coefficients among all the pairs are greater than 0.5, comment on the following cluster distribution : 302 clusters with only 1 stock, 28 with 2 stock, 6 with 3, 4 with 4, 1 with 5, 1 with 6 , and 1 cluster with 9 stocks in it.
C) Explain why it would be good to pick just one stock from the cluster for the diversified portfolio.
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