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Coarse graining correlation matrices according to macrostructures: Financial markets as a paradigm

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  • M. Mija'il Mart'inez-Ramos
  • Parisa Majari
  • Andres R. Cruz-Hern'andez
  • Hirdesh K. Pharasi
  • Manan Vyas

Abstract

We analyze correlation structures in financial markets by coarse graining the Pearson correlation matrices according to market sectors to obtain Guhr matrices using Guhr's correlation method according to Ref. [P. Rinn {\it et. al.}, Europhysics Letters 110, 68003 (2015)]. We compare the results for the evolution of market states and the corresponding transition matrices with those obtained using Pearson correlation matrices. The behavior of market states is found to be similar for both the coarse grained and Pearson matrices. However, the number of relevant variables is reduced by orders of magnitude.

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  • M. Mija'il Mart'inez-Ramos & Parisa Majari & Andres R. Cruz-Hern'andez & Hirdesh K. Pharasi & Manan Vyas, 2024. "Coarse graining correlation matrices according to macrostructures: Financial markets as a paradigm," Papers 2402.05364, arXiv.org, revised Jun 2024.
    • Handle: RePEc:arx:papers:2402.05364
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    References listed on IDEAS

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