Hunting High and Low: Visualising Shifting Correlations in Financial Markets

Abstract

AbstractThe analysis of financial assets’ correlations is fundamental to many aspects of finance theory and practice, especially modern portfolio theory and the study of risk. In order to manage investment risk, in‐depth analysis of changing correlations is needed, with both high and low correlations between financial assets (and groups thereof) important to identify. In this paper, we propose a visual analytics framework for the interactive analysis of relations and structures in dynamic, high‐dimensional correlation data. We conduct a series of interviews and review the financial correlation analysis literature to guide our design. Our solution combines concepts from multi‐dimensional scaling, weighted complete graphs and threshold networks to present interactive, animated displays which use proximity as a visual metaphor for correlation and animation stability to encode correlation stability. We devise interaction techniques coupled with context‐sensitive auxiliary views to support the analysis of subsets of correlation networks. As part of our contribution, we also present behaviour profiles to help guide future users of our approach. We evaluate our approach by checking the validity of the layouts produced, presenting a number of analysis stories, and through a user study. We observe that our solutions help unravel complex behaviours and resonate well with study participants in addressing their needs in the context of correlation analysis in finance.