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What is Optimal Cleaning of Correlation Matrices about?
This document discusses different methods for cleaning correlation matrices to estimate the true underlying correlation matrix and improve the accuracy of portfolio optimization. It presents five existing cleaning recipes, including the sample estimator and methods that shrink eigenvalues towards the mean. The most recent and optimal method proposed derives a fully observable estimator of the true correlation matrix that outperforms existing estimators in terms of out-of-sample risk for synthetic portfolios
- Author
- doc_oz3298
- Language
- EN