Covariance Between Two Portfolios

Summary

The document explains how to calculate covariance between portfolios, including a global minimum variance portfolio and a mean-variance efficient portfolio. The same covariance definition used for individual securities applies: use the portfolios’ returns and expected returns in place of the securities’ values.

The answer gives a concise conceptual rule, but does not provide a worked example or discuss how portfolio returns are constructed from constituent assets. It also offers no empirical evidence or guidance on estimation choices; it addresses only whether the covariance formula changes when the objects being compared are portfolios.

Key ideas

• The covariance formula applies to portfolios as well as individual securities.
• Use portfolio returns and their expected values when calculating portfolio covariance.
• The document does not provide a worked example or discuss estimation methods.

Tags

# How do i find the covariance between two portfolios?


# How do i find the covariance between two portfolios?












I know that the formula for covariance is

But this is for two securities. How do I find the covariance between two portfolios? more specifically between the global minimum variance (GMV) and the mean-variance efficient (MVE) portfolio.

## Answer by Martin Vesely (score 1)

https://quant.stackexchange.com/a/54892

It does not matter whether you measure covariance of two portfolios or two securities, the formula is the same. Simply instead of returns and expected values for securities, put those for portfolios.

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