Berlin 2012 – wissenschaftliches Programm
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AGjDPG: Arbeitsgruppe junge DPG
AGjDPG 3: Focus Session: Big Data (Contributed Talks)
AGjDPG 3.1: Vortrag
Montag, 26. März 2012, 17:15–17:30, HE 101
Quantifying the behavior of stock correlations under Market stress — Tobias Preis1,2,3, •Dror Kenett4, H. Eugene Stanley1, Dirk Helbing2,5, and Eshel Ben-Jacob4 — 1Center for Polymer Studies, Department of Physics, 590 Commonwealth Avenue, Boston, MA 02215, USA, — 2Chair of Sociology, in particular of Modeling and Simulation, ETH Zurich, Clausiusstr. 50, 8092 Zurich, Switzerland — 3Artemis Capital Asset Management GmbH, Gartenstr. 14, 65558 Holzheim, Germany — 4School of Physics and Astronomy, Tel-Aviv University, Tel-Aviv, Israel — 5Santa Fe Institute, 1399 Hyde Park Road, Santa Fe, NM 87501, USA
Understanding of correlations in complex systems is crucial in the face of crises, such as the ongoing financial crisis. However, in complex systems, such as financial systems, correlations are not constant but instead vary in time. Here we address the question of quantifying state-dependent correlations in stock markets, since reliable estimates of correlations are most needed to protect a port- folio. We find the striking result that the average correlation among stocks belonging to a given index scales linearly with market stress reflected by the normalized value of the index return. Consequently, the diversification effect of the portfolio value melts away in times of market losses, just when it would most urgently be needed. Our empirical findings could be used to anticipate diversification break- downs leading to protected individual portfolios and could contribute to increased stability of financial markets in general.