Financial Toolbox™

corr2cov - Convert standard deviation and correlation to covariance

Syntax

ExpCovariance = corr2cov(ExpSigma, ExpCorrC)

`ExpSigma`	Vector of length n with the standard deviations of each process. n is the number of random processes.
`ExpCorrC`	(Optional) n-by-n correlation coefficient matrix. If `ExpCorrC` is not specified, the processes are assumed to be uncorrelated, and the identity matrix is used.

corr2cov converts standard deviation and correlation to covariance.

ExpCovariance is an n-by-n covariance matrix, where n is the number of processes.

ExpCov(i,j) = ExpCorrC(i,j)*(ExpSigma(i)*ExpSigma(j)

ExpSigma = [0.5  2.0];

ExpCorrC = [1.0 -0.5
           -0.5  1.0];

ExpCovariance = corr2cov(ExpSigma, ExpCorrC)

Expected results:

ExpCovariance =

    0.2500   -0.5000
   -0.5000    4.0000