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So, when building a portfolio do people really compute the covariance and correlations between stocks? Seems like to much of a hassle..
Tried doing it with my own portfolio that has ICLN and SNE which are pretty different stuff (renewable energy and Sony) and I still got positive correlation. Did the same experiment with SPY, ICLN, AAPL and XLF and had pretty much the same correlations
Aren’t other things like the actual conditions of a company more important?
Kinda confused right now, trying to apply this readings to real life
I use 10 year correlation all the time between equities.
A famous one that we use in our own models- biopharma & software. For example- the 10 year corr of Eli Lilly and Salesforce is slightly negative.
Then obviously- making sure you have the right credit and treasuries to offset your risk positions within the whole portfolio.
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