Posted: Tue Jan 10, 2006 12:12 pm Post subject: Correlation or Covariance Matrix
The VBA code on portfolio optimization is beautiful. I am trying to work it out, but I have a question.
step 1: I take daily close prices of a certain stock
step 2: I calculate the daily returns on these stocks
step 3: In Excel I calculate the Covariance matrix on these daily returns via the Data Analysis add-in.
step 4: I enter the estimated returns and hit the macro button.
Is it correct that I use a Covariance Matrix on the daily returns on the stocks or should it be a correlation matrix? In your example it says Variance...
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