# Tag Info

## Hot answers tagged covariance-matrix

5

This is the result of the Sherman-Morrison inversion for the sum of an invertible matrix and an outer product. You will find this (and many other helpful methods) in the Matrix Cookbook. Specifically, this is equation 160 on p 18: $$\left(\boldsymbol{A}+\boldsymbol{bc}^T\right)^{-1}=\boldsymbol{A}^{-1}-\frac{\boldsymbol{A}^{-1}\boldsymbol{bc}^T\boldsymbol{A}... 1 While the close vote might be reasonable, there is mathematical arguments that show there is a limit to how negatively correlated a set of assets can be. It is even a classic quant interview question: Let the correlation matrix be$$\Omega = \rho \mathbf{1} + (1-\rho)I_d, where $\mathbf 1$ is the $d \times d$ matrix with 1's everywhere. What is the range ...

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