Michael Stein, Svetlozar T. Rachev, Stoyan V. Stoyanov, Frank J. Fabozzi

We use a combination of sophisticated methods to measure the dependence of a sector FoF on the broad stock market, thereby modeling the univariate randomness of the variables adequately as well. A very parsimonious approach is used to allow for updating in high frequencies and on a regular basis using only recent information and therefore small data sets. This allows for a large variety of applications, from risk management and measurement, portfolio optimizations and scenario analyses to investment selection and hedging purposes as examples, the latter being critical for sector FoFs when adequate hedging tools are unavailable.