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.
This exercise is part of the course
Introduction to Portfolio Risk Management in Python
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
# Calculate the correlation matrix
correlation_matrix = ____
# Print the correlation matrix
print(correlation_matrix)