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PortfolioAnalytics (version 2.0.0)

covarianceSF: Covariance Matrix Estimate

Description

Estimate covariance matrix using a single factor statistical factor model

Usage

covarianceSF(beta, stockM2, factorM2)

Value

(N x N) covariance matrix

Arguments

beta

vector of length N or (N x 1) matrix of factor loadings (i.e. the betas) from a single factor statistical factor model

stockM2

vector of length N of the variance (2nd moment) of the model residuals (i.e. idiosyncratic variance of the stock)

factorM2

scalar value of the 2nd moment of the factor realizations from a single factor statistical factor model

Details

This function estimates an (N x N) covariance matrix from a single factor statistical factor model with k=1 factors, where N is the number of assets.