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Exercise

Asset covariance and portfolio volatility

Now that you've examined the return of the portfolio of investment banks, it's time to assess the riskiness of the portfolio using the covariance matrix to determine the portfolio's volatility.

First you'll compute the covariance between the asset_returns and identify which of the banks had the highest volatility during the 2008-2009 crisis period.

Then, given the weights of an equal-weighted portfolio, you'll find the portfolio's annualized volatility for that period using portfolio_returns.

Finally, you'll use a 30-day window to create a time series of the volatility, and visualize this with a plot.

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  • Compute the covariance matrix of the portfolio's asset_returns using the .cov() method, and annualize by multiplying the covariance by the number of trading days (252).
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