project
group 9 : Clustering with correlation coefficient
This presentation /project is about correlation coefficients used as the clustering measure.
File needed to see the correlation coefficients and bi-monthly returns:
returnAstcBiMonthlyEG1.mat
Address in the presentation the following:
1) Givencorrelation coefficientfromhttps://mathworld.wolfram.com/CorrelationCoefficient.html
A) What is the meaning of correlation coefficient between the two set of stocks prices?
B) Show why thecorrelation coefficient betweenthe set of prices A and set of prices B is the same as the correlation coefficient betweenthe set of prices B and set of prices A.
2) After loadingreturnAstcBiMonthlyEG1.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 thecorrelation coefficients based on bi-monthlyreturnsamong 412 stocksshown in the figure P5_CC_eg1.pdf
B) Assuming that clusters are created by putting all the stocks whose correlation coefficientsamong all the pairs are greater than 0.5, comment on the following cluster distribution :302 clusterswith 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.
