Network analysis of Shanghai sector in Chinese stock market based on Partial Correlation

The stock price of a given company is not only affected by its fundamentals and other associated listed companies, but also influenced by the fluctuation of the stock market index. Network analysis methods can be used to analysis net correlations between stocks. This paper constructs minimum spanning tree (MST) and hierarchical tree (HT) of stocks of shanghai sector traded in Shanghai Stock Exchange based on Partial Correlation Coefficients between stocks, deleting the impacts of Shanghai Composite Index. Then the distribution features of stocks are analyzed. Furthermore, Partial Correlation Coefficients and Simple Correlation Coefficients are applied to constructing MST of stocks, the empirical results are compared and we find that Partial Correlation Coefficient is a better choice when constructing network of stocks.