You could do so from either the NSE or the BSE website.
CALCULATE STANDARD ERROR FROM VARIANCE COVARIANCE MATRIX HOW TO
Let us understand how to create a correlation matrix in Excel using the 1-year daily log returns data of the following ten stocks: HDFC bank, SBI, Tata Steel, Lupin, Wipro, Tata Motors, Bajaj Finserv, Dabur, Balkrishna Industries, and Graphite.ĭownload the 1-year daily price data of each of the above stocks. As there are 10 pairs of correlation, analyzing them would be much simpler if done using a correlation matrix. The answer is 10 – AB, AC, AD, AE, BC, BD, BE, CD, CE, and DE. How many pairs of correlation can we calculate for a 5-stock portfolio? Well, this can be solved using the combinatorics formula that we discussed in the last chapter. Because the investor wants to diversify, he or she would be interested in knowing the correlations between all the pairs of stocks. Let us assume an investor wants to build a diversified portfolio comprising of 5 stocks – A, B, C, D, and E. While the number of stocks in a portfolio can vary from one investor or trader to another, typically, an ideal portfolio comprises between 8 to 20 stocks. But what if there are multiple stocks, which would make it necessary to calculate several correlation pairs? This is indeed a situation in case of a portfolio, which comprises of 3 or more stocks. Back then, we spoke of how to calculate correlation between just two stocks. In chapter 7, we spoke about correlation. Calculating Correlation Matrix in Microsoft Excel: However, we will talk about how to do so in Microsoft Excel, so as to reduce the quantum of manual work and save on time. In this chapter, we will continue our focus on what we spoke about in the last few chapters. However, we did so manually, which can become quite cumbersome and time consuming if there are more than 2-3 stocks in a portfolio. We also spoke about how to calculate portfolio variance and standard deviation as well as the beta of a portfolio. In the previous chapter, we discussed how to calculate the expected return on a portfolio.
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