Noise-Reduced Correlations, the Signal to Noise Ratio, and SSA

21 Pages Posted: 11 Jul 2016 Last revised: 22 Jul 2016

Date Written: July 11, 2016

Abstract

This is the second paper presenting noise-reduced, stable correlations for long-term risk measurement. We smooth time series using Singular Spectrum Analysis (SSA) and then form the correlations from these smoothed time series. These correlations have superior time stability and are cleaned of noise. Here we show that the Signal-to-Noise Ratio is larger for the SSA-based correlations than usual, and we perform other signal/noise tests. We use new results refining random matrix correlations.

Keywords: Key Words: Singular Spectrum Analysis, SSA, Signal to Noise, correlations, stable, noise-reduced, smoothed time series, random matrix

JEL Classification: C1, C14, C22, C63, E44, F65, G1, Y1

Suggested Citation

Dash, Jan and Yang, Xipei, Noise-Reduced Correlations, the Signal to Noise Ratio, and SSA (July 11, 2016). Available at SSRN: https://ssrn.com/abstract=2808052 or http://dx.doi.org/10.2139/ssrn.2808052

Jan Dash (Contact Author)

Bloomberg LP ( email )

731 Lexington Ave
New York, NY 10022
United States

Xipei Yang

Bloomberg L.P. ( email )

731 Lexington Avenue
New York, NY 10022
United States

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