Hens Steehouwer, Head of Research, has had his article about ‘Mastering the dimensions of Correlations’ published in The Journal of Performance Measurement from the Spaulding Group.
The article was published in August 2020 and gained a lot of interest from several media. Hens commented “I’m happy to see that this paper received a lot of interest in 2020. I hope that its publication in The Journal of Performance Measurement will further increase the general understanding of the complexities in correlations, and how to deal with these in risk management and investment decision making.”
The Journal of Performance Measurement is a quarterly publication and is the only publication that is completely focused on performance measurement for the investment professional.
About the articleIn the paper, Hens discusses the various dimensions of correlations and illustrates how to master these with the help of well-designed and calibrated risk models. He describes that correlations are an essential component of a risk management and investment decision framework. They determine how risk aggregates across different asset classes and liabilities into portfolio or balance sheet risk. Unfortunately, correlations are very complex because they have many dimensions, and calibrating risk models to realistic correlation structures can be difficult and time-consuming. Practitioners often follow a “partial approach” in which they calibrate models on an application-specific subset of the correlation dimensions. However, such a partial approach is inefficient and inconsistent.
Read the full article here.