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If you know of anyone who has institutional investor access who has a Bloomberg
terminal they could run a simple scan of the index to see which stocks comprise
the largest share of the index. Further, they could also see which stocks were
the movers of that index on a daily basis.
Terrence
Neil Harrington wrote:
> Paul,
>
> The last I looked at it, one component of AIQ's software was called
> MatchMaker. It is very powerful in doing things like what you want, which is
> correlation analysis. Their system is oriented around sector and group
> organization, in addition to looking at individual stocks.
>
> So, for example, you can take an individual stock and correlate it against
> S&P groups or Investors Business Daily Industry Groups and see which one it
> correlates best with, or you could even go to the extreme and correlate
> every stock with every other stock and see where high correlations exist.
> Or, as you want to do, you can create a group of stocks and correlate that
> against whatever you want.
>
> After doing that, you can get some coincidental correlations (like Coca Cola
> correlating with Yahoo), so you would do some coarse fundamental filtering
> so it makes sense.
>
> I hope this helps.
>
> Neil
>
> | -----Original Message-----
> | From: Paul [mailto:paltman@xxxxxxxxxxx]
> | Sent: Tuesday, June 23, 1998 9:50 PM
> | To: omega-list@xxxxxxxxxx
> | Subject: Bread-basket of stocks as proxy for index
> |
> |
> | Folks:
> |
> | I need to understand what logical reasoning is used to
> | concoct a bread
> | basket of stocks as a proxy for an stock index.
> |
> | Let's suppose that I have an index of 100 stocks, but no convenient
> | derivatives are traded on it.
> |
> | I want to create a bread basket of 8 stocks that optimally
> | correlate with
> | the index, and then to trade those 8 stocks. How is this
> | done? IOW, how
> | do I choose the stocks from a known universe of potential
> | candidates (some
> | of which may not even be in the index), and choose
> | weightings such that
> | I've optimally represented the daily moves of the index?
> |
> | I'll guess that there's an elegant stats solution to this,
> | other than an
> | ugly brute force one like having a computer crunch out a
> | zillion random
> | weightings and taking the best one.
> |
> | BTW, is it possible that some of the candidates with the worst
> | correlations, will take on magical properties when properly
> | combined with
> | other poor performers? I.e., is it even theoretically
> | possible to get
> | great correlation with the index from a mix of candidates that, by
> | themselves, may have terrible correlation?
> |
> | Hope I've phrased the question precisely enough. I'm pretty
> | fuzzy about
> | where to get started with this, though I'll bet it's done
> | all the time by
> | the big brokerage firms in their program trading and index arbitrage.
> |
> | Thanks for any help.
> |
> | -Paul
> |
> |
> |
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