New answers tagged covariance-matrix
1
vote
Imposing diagonality of error covariance matrix when the CAPM holds
The notation $\Sigma$ is often used for covariance matrix Var($r_t$).
Using notation $\Psi_t = \text{Var}(\epsilon_t)$, a common modeling assumption is that the residuals are independent, $\epsilon_{i,...
- 131
1
vote
Calculating variance of long/short portfolio
I think your are really asking how to normalize the weights. For example,
$$
\begin{align}
w_\textrm{usd} &=
\begin{bmatrix}
100 \\ 50\\ -200\\ 51
\end{bmatrix},\\
&~\\
w^\prime &= \frac{...
- 131
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