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$\begingroup$ If I may make a further suggestion about the internal workings here, with $n$ stocks, the covariance matrix estimate suggested above involves $n(n+1)/2$ free parameters and presumably handles time-variation in conditional correlations in an ad hoc fashion. It has the advantage of both speed and simplicity, but the OP might want to think about modeling the dynamic of conditional correlations explicitly. There is a not-so-obvious to resolve trade-off between variance and bias here. $\endgroup$

Stéphane
– Stéphane

2020-03-18 19:18:54 +00:00
Commented Mar 18, 2020 at 19:18

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