I am wondering if it's mathematically 'correct' to employ a correlation matrix based on Kendall-correlation when constructing a covariance matrix?

I.e., is it wrong to multiply standard deviations of e.g. returns with the Kendall-correlation-matrix to form a covariance matrix?

That is, I am only changing the correlation estimates to be based on Kendall's tau instead of the standard Pearson linear correlation coefficient when 'constructing' my covariance matrix.

  • $\begingroup$ I have the same problem. I wonder if there is anyone to answer this question... $\endgroup$ – Sara Nov 27 '18 at 17:14

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