Dynamics of market states and risk assessment

Abstract

Based on previous developments of the concept of market states using correlation matrices, in the present paper we address the dynamical evolution of correlation matrices in time. This will imply minor modifications to the market states themselves, due to increased attention to the transition matrix between the states. We will introduce trajectories of the correlation matrices by considering one day shifts for the epoch used to calculate the correlation matrices and will visualize both the states and the trajectories after dimensional scaling. This approach using dynamics improves the options of risk assessment and opens the door to dynamical treatments of markets and shows noise suppression in a new light.Comment: 22 pages and 27 figures. arXiv admin note: text overlap with arXiv:2003.0705