Noise-Reduced Correlations, the Signal to Noise Ratio, and SSA

Abstract

This is the second paper presenting noise-reduced, stable correlations for long-term risk measurement. We smooth time series using Singular Spectrum Analysis (SSA) and then form the correlations from these smoothed time series. These correlations have superior time stability and are cleaned of noise. Here we show that the Signal-to-Noise Ratio is larger for the SSA-based correlations than usual, and we perform other signal/noise tests. We use new results refining random matrix correlations.

Keywords: Key Words: Singular Spectrum Analysis, SSA, Signal to Noise, correlations, stable, noise-reduced, smoothed time series, random matrix

JEL Classification: C1, C14, C22, C63, E44, F65, G1, Y1