Equal Correlation
Equal Correlation
Equal correlation method which assumes every two different assets shares the same correlation. In this way, we just have to know the correlation between assets, we can gain covariance matrix.
\(\rho_{ij} =
\begin{cases}
1 & \text{i=j} \\
c & \text{else}
\end{cases} \)
, where c is a constant. In this way, we have \(\Sigma_{ij} = Cov(x_i,x_j) = \rho_{ij}\sigma_i \sigma_j \).
