Portfolio variance

borabora · July 9th, 2015, 10:22 am

Hi All,could someone take me through why the portfolio variance can be written like this [$]x'Mx[$] in matrix form? where [$]M[$] is the cov matrix and [$]x[$] the assets weights. Is there any mathematical rule behind that?[$]Var(x'R) [$]= [$]x'Mx[$], where [$]R[$] are the assets returnsAlso a similar thing, the cov of 2 portfolio returns as [$]x'My[$] , where [$]y[$] are the weights of the other portfolio. Thanks

Jhammer · July 9th, 2015, 1:48 pm

https://www.google.com/?gws_rd=ssl#q=va ... lio+matrix

borabora · July 9th, 2015, 3:27 pm

Jhammer on google many mention the formulae to compute the variance but I could not find a singer author explaining in detail the maths behind why Var(x'R) = x'Mx.

kermittfrog · July 10th, 2015, 4:33 am

At the risk of feeding trollshttp://faculty.washington.edu/ezivot/econ424/portfolioTheoryMatrix.pdf

ExSan · July 11th, 2015, 12:43 pm

QuoteOriginally posted by: boraboraHi All,could someone take me thorough why the portfolio variance can be written like this [$]x'Mx[$] in matrix form? where [$]M[$] is the cov matrix and [$]x[$] the assets weights. Is there any mathematical rule behind that?[$]Var(x'R) [$]= [$]x'Mx[$], where [$]R[$] are the assets returnsAlso a similar thing, the cov of 2 portfolio returns as [$]x'My[$] , where [$]y[$] are the weights of the other portfolio. ThanksCoursera: Financial Engineering + others, explain this equation, check them up

borabora · July 11th, 2015, 5:07 pm

I will have a look...