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  3. Introduction to Portfolio Risk Management in Python

Exercise

The correlation matrix

The correlation matrix can be used to estimate the linear historical relationship between the returns of multiple assets. You can use the built-in .corr() method on a pandas DataFrame to easily calculate the correlation matrix.

Correlation ranges from -1 to 1. The diagonal of the correlation matrix is always 1, because a stock always has a perfect correlation with itself. The matrix is symmetric, which means that the lower triangle and upper triangle of the matrix are simply reflections of each other since correlation is a bi-directional measurement.

In this exercise, you will use the seaborn library to generate a heatmap.

Instructions 1/2

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Calculate the correlation_matrix of the StockReturns DataFrame.