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covariance matrix scaling (in terms of time horizon)

Posted on 2014-04-17
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Last Modified: 2014-04-24
Hi,

I make research in the field of finance and have a problem I can not find any reasonable solution.

I try to find a way to scale the correlations / covariances in terms of time horizon. More specifically, I want to find out if there is a way to get e.g. from daily to monthly correlations / covariances. Is there a ratio or model to solve the following problem:

Corr(monthly) = x*Corr(daily)

If somebody has already faced the same problem and found a solution, could you pls indicate a reliable source if available?

Thanks,
m
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Question by:mcastna
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richdiesal earned 1500 total points
ID: 40007091
A correlation is a standardized covariance.  It has no scale.  So without additional data, they will be equal.

Covariance does have scale, and you could theoretically determine what it would be, but that is not something I have ever heard of anyone doing before. It also wouldn't tell you anything you didn't already know, so I don't see why you'd need it.
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