I'm considering a portfolio of multiple stocks (>2), and calculating their Standard Deviation/Variance and VaR for the portfolio. My question is about the below two ways to calculating them
- Consider the stocks indivisually, calculate their variance and Var, and then calculate the combined portfolio variance using the correlation matrix.
- Consider the returns of the combined portfolio, and then calculate the variance and Var.
While #2 seems a simpler approach, I've not really seen that approach followed anywhere. I'm curious to think what the difference would look like between the two approaches (if any). From my understanding #1 is usual approach that is followed.