How To Fix RY627 - Correlation matrix has negativ definition; VaRC calculation prevented

RY627 - Overview

• Message type: E = Error

• Message class: RY - Messages for RM Basis

• Message number: 627

• Message text: Correlation matrix has negativ definition; VaRC calculation prevented

What causes this issue?

The correlation matrix of risk factors is defined negative and also
inconsistent.

System Response

The VaR contribution (VaRC) cannot be calculated.

How to fix this error?

When you determine the correlation matrix using the statistics
calculator (transaction TVS1), you can ensure the consistency of the
correlation matrix by setting the Adjust Correlation Matrix indicator.

Procedure for System Administrators

The system issues an error message and will not allow you to continue with this transaction until the error is resolved.

Error message extract from SAP system. Copyright SAP SE.

Smart SAP Assistant

• What is the cause and solution for SAP error message RY627 - Correlation matrix has negativ definition; VaRC calculation prevented ?

  The SAP error message RY627, which states "Correlation matrix has negative definition; VaRC calculation prevented," typically occurs in the context of Value-at-Risk (VaR) calculations in SAP's Risk Management or Financial Services modules. This error indicates that the correlation matrix used in the VaR calculation has negative eigenvalues, which suggests that the matrix is not positive semi-definite. This can lead to issues in risk calculations, as a valid correlation matrix should only contain non-negative eigenvalues.
  Causes:
  
  Data Issues: The underlying data used to calculate the correlation matrix may contain errors, such as missing values, outliers, or incorrect data types.
  Model Specification: The model used to estimate the correlations may be incorrectly specified, leading to an invalid correlation matrix.
  Insufficient Data: There may not be enough historical data to accurately estimate the correlations, resulting in instability in the matrix.
  Market Conditions: Extreme market conditions or volatility can lead to unusual correlations that may not hold in a