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## Main Question or Discussion Point

Hello all. I am not a stats person so I would like some help/confirmation on this one.

What I am trying to achieve (if possible) is a metric on how two portfolios (or strategies) are correlated.

Imagine there are two portfolios of assets A,B,C,D... with different weights of each asset.

eg.

(Read this as Portfolio one consisting of 5 of asset A, 2 of asset B, no asset C, -3 of asset D and so on. The negative values means that the portfolio is short that asset.)

Let the correlation coefficients of each asset pair be given such that we can construct a typical correlation matrix (NxN square matrix, where

I *think* that all I need to do is:

1. Multiply each portfolio vector by the correlation matrix

2. Calculate the correlation onf the two datasets (vectors)

I have done this for several portfolios and what I arrive at

Much appreciated.

What I am trying to achieve (if possible) is a metric on how two portfolios (or strategies) are correlated.

Imagine there are two portfolios of assets A,B,C,D... with different weights of each asset.

eg.

**P**= (5, 2, 0, -3, ...) and_{1}**P**= (0, 3, 10, -5, ...)_{2}(Read this as Portfolio one consisting of 5 of asset A, 2 of asset B, no asset C, -3 of asset D and so on. The negative values means that the portfolio is short that asset.)

Let the correlation coefficients of each asset pair be given such that we can construct a typical correlation matrix (NxN square matrix, where

**a**_{i,j}is the correlation coefficient for assets i and j).I *think* that all I need to do is:

1. Multiply each portfolio vector by the correlation matrix

**M**°

_{correlation}**P**=

_{1}**X**and

_{1}**M**°

_{correlation}**P**=

_{2}**X**

_{2}**X**and_{1}**X**_{2}****

*Corr*(X_{1},X_{2}) =*Corr*(P_{1},P_{2})I have done this for several portfolios and what I arrive at

*looks*right, but I am not sure if it*is*right. Am I out to lunch? Thoughts?Much appreciated.