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  3. Introduction to Portfolio Risk Management in Python

Exercise

The co-variance matrix

You can easily compute the co-variance matrix of a DataFrame of returns using the .cov() method.

The correlation matrix doesn't really tell you anything about the variance of the underlying assets, only the linear relationships between assets. The co-variance (a.k.a. variance-covariance) matrix, on the other hand, contains all of this information, and is very useful for portfolio optimization and risk management purposes.

Instructions

100 XP
  • Calculate the co-variance matrix of the StockReturns DataFrame.
  • Annualize the co-variance matrix by multiplying it with 252, the number of trading days in a year.