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System and method for displaying and analyzing financial correlation data

  • US 9,098,877 B2
  • Filed: 12/10/2013
  • Issued: 08/04/2015
  • Est. Priority Date: 01/30/2013
  • Status: Active Grant
First Claim
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1. A computer-implemented method for displaying on a display device an N×

  • N matrix of correlations of N financial instruments, portfolios, indices, or asset classes using M dimensions, N being a large number, M being significantly smaller than N, while closely approximating distances between the N financial instruments, portfolios, indices, or asset classes as defined by the N×

    N matrix of correlations, the method comprising;

    converting by a computer processor the N×

    N matrix of correlations into a probability transition matrix, each of the correlations representing a numerical correlation between two of the N financial instruments, portfolios, indices, or asset classes, the probability transition matrix comprising corresponding normalized versions of the correlations in the N×

    N matrix of correlations;

    defining by the computer processor a corresponding first distance measurement between any two of the N financial instruments, portfolios, indices, or asset classes based on the probability transition matrix, the first distance measurement measuring a closeness between corresponding said normalized correlations of said any two of the N financial instruments, portfolios, indices, or asset classes;

    using by the computer processor a diffusion map to assign coordinates in an M-dimensional Euclidean space to each of the N financial instruments, portfolios, indices, or asset classes corresponding to non-unit eigenvalues of the probability transition matrix such that a Euclidean distance between said any two of the N financial instruments, portfolios, indices, or asset classes in the Euclidean space closely approximates the corresponding first distance measurement; and

    displaying on the display device the N financial instruments, portfolios, indices, or asset classes based on the Euclidean space corresponding to a selection of M ones of the eigenvalues.

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