by Georg Ehrhart, Partner, Market Risk Management & Research, Schwabe, Ley & Greiner
We all know that correlation is a statistical method to express the relationship of data and their movements, for example, the movement of the EUR/USD-spot rate versus the price of oil. Or, in other words, correlation helps you to find out whether the total risk in your portfolio is less than the risk of all individual factors added together, because sometimes the price of one risk can go up more strongly than the price of another risk (or may even decline at the same time). Once you are calculating such effects you need to work out the correlations of all risk factors in your portfolio. This is the number-crunching part which needs to be done in a concise, secure and efficient way, and which we do for our clients for more than 1,000 risk factors by way of a daily, weekly or monthly individual service. These data are then imported into their treasury systems.
The result of this can be visualised in the new Portfolio-Risk-Index, a monthly index which Schwabe, Ley & Greiner (SLG) has started to publish.