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A Portfolio Approach to Estimating the Average Correlation Coefficient for the Constant Correlation Model

Yash P. Aneja, Ramesh Chandra and Erdal Gunay
The Journal of Finance
Vol. 44, No. 5 (Dec., 1989), pp. 1435-1438
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328653
Stable URL: http://www.jstor.org/stable/2328653
Page Count: 4
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A Portfolio Approach to Estimating the Average Correlation Coefficient for the Constant Correlation Model
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Abstract

This paper presents a portfolio approach to estimating the average correlation coefficient of a group of stocks which are considered for portfolio analysis. The average correlation coefficient has been shown to produce a better estimate of the future correlation matrix than individual pairwise correlations. The advantage of the approach described here is that it does not require the estimation of pairwise correlations for estimating their average.

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