Detecting BS in Correlation Windows

S&P 500 and 10-year US Treasury Bond Rolling Correlation of Monthly Returns

Financial theory requires correlation to be constant (or, at least, known and nonrandom). Nonrandom means predictable with waning sampling error over the period concerned. Ellipticality is a condition more necessary than thin tails, recall my Twitter fight with that non-probabilist Clifford Asness where I questioned not just his empirical claims and his real-life record, but his own theoretical rigor and the use by that idiot Antti Ilmanen of cartoon models to prove a point about tail hedging. Their entire business reposes on that ghost model of correlation-diversification from modern portfolio theory. The fight was interesting sociologically, but not technically. What is interesting technically is the thingy below.

Link to full article – https://fooledbyrandomness.com/blog/2021/11/24/detecting-bs-in-correlation-windows/

[YouTube] Why Correlation is Unreliable

At the 2022 Greenwich Economic Forum-Miami, Black Swan author, Nassim Nicholas Taleb explains why correlation is unreliable as a due diligence tool. Coming as it does during an ongoing pandemic and in the middle of Vladimir Putin’s invasion of Ukraine, Taleb also discusses Wars and Pandemics and puts them into their proper risk buckets.

[YouTube] Disinformation and Fooled by Randomness

We are not naturally good at dealing with information.

Disinformation artists confuse you by focusing on noise over signal by playing on saliency, the same effect as the one discussed in Fooled by Randomness. We mistake the particular for the general, details for the ensemble, and noise for signal –all from the same mental bias.

[YouTube] First Course on Fragility, Convexity, and Antifragility (Nontechnical)

A first, very introductory presentation of fragility as linked to both nonlinearity and dislike of variations. Antifragility is almost the opposite, limited to a specific range of variations.

Explains:

  • Why everything fragile must be concave.
  • The medical S curve.
  • Why harm to the climate is necessarily nonlinear in dose response.
  • How hospitals can be overcrowded unless there are redundancies.

Further discussions will be more technical.

[YouTube] Claims that Violence Has Dropped Are Not Statistical

Violence is from Extremistan, hence requires some more sophisticated tools since LLN works slowly. We see how Pinker’s thesis is bogus. We look at ways to integrate the factual unreliability of historical accounts. We look at transformations to analyze violence using Power law tools since the worst case is bounded at the contemporary population level.

Links to Papers with Pasquale Cirillo

On the statistical properties and tail risk of violent conflicts [TECHNICAL, PHYSICA A]

The Decline of Violent Conflicts: What Do the Data Really Say? [NONTECHNICAL, NOBEL FOUNDATION]