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PORT_COVAR
Calculates the covariance between two portfolios weighting.
Syntax
PORT_COVAR(W1, W2, V)
W1
are the weights of the assets in the first portfolio. (one dimenional array of cells (e.g. rows or columns)).
W2
are the weights of the assets in the second portfolio. (one dimenional array of cells (e.g. rows or columns)).
V
is the covariance matrix (two dimenional array of cells). For uncorrelated assets, V can be passed as a one dimensional array of variances (cells).
Remarks
- For uncorrelated assets, the covariance matrix is zero for all off-diagnonal elements. In this case, the covariance matrix (V) can be passed as an array of only variances (a one dimensioal array).
- The weights array size must equal to the number of risky assets.
- The assets order in must be identical in the covariance and assets weights arrays.
- By definition, the covariance matrix is a square symmetric matrix with order equals to number of assets in the portfolio.
- The number of unique elements in the covariance matrix is equal to:
where
is the number of risky assets in the portfolio.
Examples
References
- Bodi, Kane and Marcus, Investments, 8th Edition . McGraw-Hill, ISBN: 007338237X