Clustering of exchange rates and their dynamics under different dependence measures

This paper proposes an improvement to the method for clustering exchange rates given by D. J. Fenn et al, in Quantitative Finance, 12 (10) 2012, pp.1493-1520. To deal with the potentially non linear nature of currency time series dependence, we propose two alternative similarity metrics to use instead of the one used in the aforementioned paper based on Pearson correlation. Our proposed similarity metrics are based upon Kendall and distance correlations. We observe how each of the newly adapted clustering methods respond over several years of currency exchange data and find significant differences in the resulting clusters.Peer ReviewedPostprint (published version

On methods to assess the significance of community structure in networks of financial time series

We consider the problem of determining whether the community structure found by a clustering algorithm applied to nancial time series is statistically signi cant, or is due to pure chance, when no other information than the observed values and a similarity measure among time series are available. As a subsidiary problem we also analyse the in uence of the choice of similarity measure in the accuracy of the clustering method. We propose two raw-data based methods for assessing robustness of clustering algorithms on time-dependent data linked by a relation of similarity: One based on community scoring functions that quantify some topological property that characterises ground-truth communities, and another based on random perturbations and quanti cation of the variation in the community structure. These methodologies are well-established in the realm of unweighted networks; our contribution are versions of these methodologies properly adapted to complete weighted networks.Peer ReviewedPostprint (published version

On methods to assess the significance of community structure in networks of financial time series

We consider the problem of determining whether the community structure found by a clustering algorithm applied to financial time series is statistically significant, when no other information than the observed values and a similarity measure among time series is available. We propose two raw-data based methods for assessing robustness of clustering algorithms on time-dependent data linked by a relation of similarity: One based on community scoring functions that quantify some topological property that characterizes ground-truth communities, the other based on random perturbations and quantification of the variation in the community structure. These methodologies are well-established in the realm of unweighted networks; our contribution are versions adapted to complete weighted networks. We reinforce our assessment of the accuracy of the clustering algorithm by testing its performance on synthetic ground-truth communities of time series built through Monte Carlo simulations of VARMA processes

Clustering assessment in weighted networks

We provide a systematic approach to validate the results of clustering methods on weighted networks, in particular for the cases where the existence of a community structure is unknown. Our validation of clustering comprises a set of criteria for assessing their significance and stability. To test for cluster significance, we introduce a set of community scoring functions adapted to weighted networks, and systematically compare their values to those of a suitable null model. For this we propose a switching model to produce randomized graphs with weighted edges while maintaining the degree distribution constant. To test for cluster stability, we introduce a non parametric bootstrap method combined with similarity metrics derived from information theory and combinatorics. In order to assess the effectiveness of our clustering quality evaluation methods, we test them on synthetically generated weighted networks with a ground truth community structure of varying strength based on the stochastic block model construction. When applying the proposed methods to these synthetic ground truth networks’ clusters, as well as to other weighted networks with known community structure, these correctly identify the best performing algorithms, which suggests their adequacy for cases where the clustering structure is not known. We test our clustering validation methods on a varied collection of well known clustering algorithms applied to the synthetically generated networks and to several real world weighted networks. All our clustering validation methods are implemented in R, and will be released in the upcoming package clustAnalytics

Clustering of exchange rates and their dynamics under different dependence measures

This paper proposes an improvement to the method for clustering exchange rates given by D. J. Fenn et al, in Quantitative Finance, 12 (10) 2012, pp.1493-1520. To deal with the potentially non linear nature of currency time series dependence, we propose two alternative similarity metrics to use instead of the one used in the aforementioned paper based on Pearson correlation. Our proposed similarity metrics are based upon Kendall and distance correlations. We observe how each of the newly adapted clustering methods respond over several years of currency exchange data and find significant differences in the resulting clusters.Peer Reviewe