Ledoit wolf effective sample
Ledoit wolf effective sample is one of 21 measurements this engine publishes in full. It is regenerated from a real run rather than transcribed, and it is shown here with its own claim boundary so the number and its limits arrive together.
The measurement
- Any non conservative
- yes
- Schema
- canli.alphac-ledoit-wolf-effective-sample.v1
Baskets
Nested beyond what this page renders. Read it in the artifact.
Non conservative halflives
- 21
- 63
- 126
- 252
- 504
- 720
Production setting
- Conservative
- no
- Delta star as coded
- 0.081609
- Delta star reestimated on effective window
- 0.147988
- Delta star rescaled to effective T
- 0.114219
- Effective sample rows
- 514.437641
- Halflife bars
- 720
- Inverse vol weights are invariant
- yes
- Max ex ante vol shift
- 0.038344
- Mean ex ante vol shift
- 0.003608
- Median ex ante vol shift
- 0.002617
- Rescale clipped at one
- no
- Rows passed in production
- 720
- Understatement factor pure T
- 1.399587
The approximation. ledoit_wolf_cc computes delta* = clip((pi - rho)/(gamma*T), 0, 1) with T = the rows PASSED. Production passes the full unweighted 720-row window while the matrix being shrunk is the EWMA covariance. Documented in the function's own docstring as the closest admissible sample.
The channel the error travels. NOT position sizing. The constant-correlation target shares S's diagonal, so this shrinkage cannot change a variance and inverse-vol weights — what the production `rank` allocator sizes on — are mathematically invariant to it. The error reaches the book only through quantities that use the off-diagonal: the overlay's ex-ante vol sqrt(w' Sigma w), which scales the whole book, and the MVO allocator, which is not the production default.
Verdict. NOT CONSERVATIVE AT ANY HALFLIFE, BUT IMMATERIAL AT THE PRODUCTION SETTING (0.36% mean ex-ante vol error). It becomes MATERIAL at a short halflife: 4.46% mean and 38.1% worst case at 21 bars. Fix it BEFORE shortening the covariance halflife, not after.
What this does not do. It does not change the live path. Production runs the legacy 720-bar covariance halflife, and any change to it is gated by the live-change ceremony and is the owner's. This measures what a future halflife decision would be walking into.
Why it is never conservative. The documented reasoning — that the unweighted window is the closest admissible sample — assumed the EWMA's effective sample could EXCEED the window. It cannot: ewma_cov is windowed at cov_window_bars, so its effective sample is bounded by the window at every halflife. Measured here it peaks at 635 rows against a T of 720 and falls to 514 at the production setting, so delta* is understated everywhere rather than only at short halflives.
Why it was conservative. A larger true T means a smaller true delta*, so using 720 when the estimator's effective sample EXCEEDS 720 over-shrinks slightly — and over-shrinking is the safe direction for a covariance estimate. The concern is the opposite case.
Worst case in ladder
- Conservative
- no
- Delta star as coded
- 0.018308
- Delta star reestimated on effective window
- 0.148516
- Delta star rescaled to effective T
- 0.217521
- Effective sample rows
- 60.598693
- Halflife bars
- 21
- Inverse vol weights are invariant
- yes
- Max ex ante vol shift
- 0.380773
- Mean ex ante vol shift
- 0.044601
- Median ex ante vol shift
- 0.031196
- Rescale clipped at one
- no
- Rows passed in production
- 720
- Understatement factor pure T
- 11.881444
Check it yourself
Every figure above is read from /glassbox/ledoit_wolf_effective_sample.json, the
artifact the engine wrote. Nothing on this page is typed by hand: the page is generated from that
file, so a figure that moves in the artifact moves here and a figure that is not in the artifact
cannot appear here at all.