Hi guys, I try to do covariance matrix to calculate the risk for our clients ( Standard deviation ). My question is what is the period should i took in to my consideration when doing covariance. Should i calculate the return of stocks in weekly basis or daily basis. Another question what is the best period when i calculate the historical return ( 1 year vs 3 year ). I think 3 year return is not appropriate because of regime change bias.
i’d go weekly. daily has alot of bid/ask bounce and depends on exact last trade… no idea on the time frame. generally i’d do more than 3 years, but the last two years obviously aren’t very normal.
In all my three years, I never had to ‘do’ a covariance matrix. Sounds like you’re studying for ACIA. Do you want to pass CFA?