I am coming across a problem I can't seem to wrap my head around, and I am not sure I am using the right words so cannot find much info in it!
I have a portfolio of assets, with data on historical daily prices for each asset.
I want to calculate the average correlation of my portfolio to an external metric, e.g. the housing market. I have average daily prices for the housing market over the same 24 month period.
Is is correct to calculate the individual correlations between each asset and the housing market, and then average that correlation weighted by how much of the asset I hold in the portfolio to get the average correlation of my portfolio to the housing market?
In Portfolio Theory I see that the focus in on "internal" correlations (e.g. stocks with each other) but I did not see what happens when you want to consider the portfolio as a group vs. an external metric.
Thank you for your help!