Learn how covariance is used to reduce risk in modern portfolio theory, how covariance is calculated and how it is used to provide portfolio diversification.

The formula for calculating covariance takes the daily return minus the mean return for each asset multiplied by each other. Covariance can maximize diversification in a portfolio.

The most common measure of covariance we encounter in the market is beta, represented by the Greek symbol β. Beta is a measure of relative volatility. And it is always expressed in relation to 1.0.

The estimation of portfolio value-at-risk (VaR) requires a good estimate of the covariance matrix. As it is well known that a sample covariance matrix based on some historical rolling window is noisy ...

Variance-covariance-based risk allocation in credit portfolios Mikhail Voropaev proposes high-precision analytical approximation for variance-covariance-based risk allocation in a portfolio of risky ...

LAURENT A. F. CALLOT, ANDERS B. KOCK, MARCELO C. MEDEIROS, MODELING AND FORECASTING LARGE REALIZED COVARIANCE MATRICES AND PORTFOLIO CHOICE, Journal of Applied ...