To calculate the daily conditional volatility of an equally weighted portfolio using your 4×4 conditional variance-covariance matrices, here’s how you can achieve it:
1.Set the Portfolio Weights - Since the portfolio has 4 stocks and is equally weighted, each stock will get 25%:
w = [0.25; 0.25; 0.25; 0.25];
2. Construct Daily Covariance Matrices - Construct a 3D matrix called Sigma, where each Sigma(:,:,t) is the 4×4 covariance matrix for day t.
3. Calculate Portfolio Volatility for Each Day - Now you can loop through each day and compute the portfolio’s conditional volatility like this:
T = size(Sigma, 3); % Number of trading days
w = ones(4,1) / 4; % Equal weights
portfolio_volatility = zeros(T,1); % Preallocate result
for t = 1:T
Sigma_t = Sigma(:,:,t); % Covariance matrix for day t
portfolio_volatility(t) = sqrt(w' * Sigma_t * w); % Volatility
end
This will give a vector of daily volatilities for your portfolio.
PFA the documentation links along with the subsection to refer for any further queries :
https://www.mathworks.com/help/finance/portfolioriskcontribution.html : Compute Individual Asset Risk Contribution
https://www.mathworks.com/help/finance/portfolio-analysis.html : portvar and portstats
https://www.mathworks.com/help/risk/estimate-var-using-parametric-methods.html : Normal VaR Calculation
Hope this helps!
