All Questions
Tagged with covariance-estimation portfolio-optimization
12
questions
0
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1
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89
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Excess Return Covariance Matrix is Singular - Cash return and risk free rate are the same [closed]
I've created a three asset excess return covariance matrix. The assets are; equity, bonds, and cash. However, my cash return is the same as my risk free rate ( i.e. 3 month Euribor). This is leaving ...
- 21
3
votes
1
answer
126
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Sample Variance of Portfolio
Let $w$ denote a vector of portfolio weights, $r_i$ denote the $i$th return vector, $\Sigma$ denote the Covariance matrix of $r_i$ and let $\hat{\Sigma}$ denote the sample covariance matrix of $r_i$.
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- 175
1
vote
1
answer
627
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Shrinkage of the Sample Covariance matrix, theory
is there any theory behind the covariance matrix shrinkage paper, why it works?
I am talking about this stats exchange thread
- 153
0
votes
2
answers
833
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Number of Observations for Non-Singular Covariance Matrix Estimation
Marcos López de Prado writes the following in his book Advances in Financial Machine Learning:
In general, we need at least \frac{1}{2} N (N+1) independent and ...
- 66
1
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0
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73
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Can the covariance matrix be represented as a scalar or something similarly small, instead of a large pair-wise grid?
The covariance matrix tabulates pair-wise interactions between variables (assets) one-at-a-time into a grid, which can quickly become large as the number of assets included in a portfolio, for example,...
- 3,040
1
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2
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435
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Meaning of an identity matrix for the covariance in portfolio optimization
Instead of using a sample covariance matrix for portfolio optimization, Ledoit and Wolf use an estimator that is the weighted average of the sample covariance matrix and the identity matrix, $I$. This ...
- 3,040
0
votes
1
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399
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Covariance Shrinkage in Black-Litterman Framework
Good evening guys
I am looking into the effects of covariance shrinkage on the diversification of asset weights for different portfolio optimisations. Initially, I was interested to see how it affects ...
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4
votes
2
answers
2k
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Creating a Covariance Matrix
Lets say that you have the correlation of x,y and you have the standard deviations of x and y , how would you then find the covariance of x,y using the correlation of x,y and and the standard ...
- 339
4
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223
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Is Ledoit-Wolf Shrinkage with a Constant Correlation Prior Reasonable for a Stock/Bond Mix?
I've been looking into Ledoit-Wolf shrinkage but I've found the papers concentrate on large numbers of assets that tend to all be highly correlated. Often a universe of large cap stocks.
I'm ...
- 1,641
0
votes
1
answer
685
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Portfolio Optimisation/Covariance Estimation on a large scale
When using Markowitz Portfolio Theory, e.g. for finding an optimal portfolio composition, one needs to have estimates of the returns, but most importantly of the covariance matrix. If our universe of ...
- 1,052
2
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0
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304
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OHLC Covarianc Estimation
Is there an R package which can estimate a covariance matrix using OHLC (Open/High/Low/Close) share prices for upwards of 40 shares using the Yang & Zhang method using daily data? I google ...
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8
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2
answers
5k
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Portfolio Optimization : Shrinkage of Covariance Matrix when data is available
It seems that shrinking the covariance matrix is especially useful if the number of individual stocks is greater than the number of data points. However is there any special gain if you're not ...
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