Testing Methods to Reduce Noise in Financial Correlation Matrices
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As the two noise reduction methods are conceptually different, they also produce different results. Our preliminary studies cannot serve as a basis to make schematic suggestions as to which method ought to be preferred in which situation. This will always be difficult. But further and systematic studies extending the ones presented here might yield some guidelines.
KeywordsPower Mapping Noise Reduction Random Matrix Correlation Matrice Portfolio Return
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