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Minimal Spanning Trees

Another way to study the correlation of stocks is to create a matrix of distances between stocks from the correlation coefficients. With this matrix of distances we can create a tree where nodes are stocks and links are the distance between the stocks. If two stocks are correlated, the distance between them is small. The tree that we use to study these properties is the Minimal Spanning Tree (MST).



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Ricardo Coelho 2007-05-08