Comparison of market diversification potential modelling approaches for the financial assets volatility forecasting

The various approaches to modeling the diversification potential index in order to find out which of them allows to predict more accurately the profitability volatility of various financial assets are compared in the article. The calculation of the diversification potential index value based on the dynamics of pairwise correlation coefficients of the corresponding financial assets. For comparison, such approaches to assessing the dynamics of pairwise correlation coefficients as the MEWMA, OGARCH, model of dynamic conditional correlation, the model of realized correlation, and others are considered. The results of the study demonstrate that in order to predict the volatility of stocks, stock indices and random financial portfolios, it is preferable to use the approach to modeling the dynamics of the diversification potential index based on the dynamic conditional correlation model. It is preferable to use the approach to modeling the dynamics of the diversification potential index based on the OGARCH model for forecasting the return volatility of Markowitz-efficient financial portfolios.