Journal Article

Signal inference in financial stock return correlations through phase-ordering kinetics in the quenched regime

Lahoche, Vincent, Samary, Dine Ousmane, Achitouv, Ixandra

2025

Overview

Financial stock return correlations have been analyzed through the lens of random matrix theory to differentiate the underlying signal from spurious correlations. The continuous spectrum of the eigenvalue distribution derived from the stock return correlation matrix typically aligns with a rescaled Marchenko-Pastur distribution, indicating no detectable signal. In this study, we introduce a stochastic field theory model to establish a detection threshold for signals present in the limit where the eigenvalues are within the continuous spectrum, which itself closely resembles that of a random matrix where standard methods such as principal component analysis fail to infer a signal. We then apply our method to Standard & Poor’s 500 financial stocks’ return correlations, detecting the presence of a signal in the largest eigenvalues within the continuous spectrum.

• Publisher: Public Library of Science,PLOS,Public Library of Science (PLoS)
• Subject: Algorithms / Biology and Life Sciences / Computational linguistics / Correlation / Correlation analysis / Data analysis / Eigenvalues / Eigenvectors / Engineering and Technology / Entropy / Equilibrium / Field theory / Finance / Financial markets / Forecasts and trends / Investments - economics / Kinetics / Language processing / Matrix theory / Models, Economic / Natural language interfaces / Phase ordering / Physical Sciences / Physics / Prices and rates / Principal components analysis / Quantitative Finance / Research and Analysis Methods / Securities markets / Signal to noise ratio / Social Sciences / Statistical inference / Statistical physics / Stochastic Processes / Stock prices / Stocks / Time series / Volatility