Based on the formula on image, I would like to know the formula to calculate 3 items.
Does anyone have any suggestions?
Thanks in advance for any suggestions
Please see following image on formula for calculating 2 items.
http://i1093.photobucket.com/albums/i43 ... lation.jpg
w = ratio
p = probability
q = correlation between 2 items
Any idea about how to find the formula for 3 items?
Treat it is a related problem: Find the variance of a weighted sum of 3 random variables. Assume you know the variances of each random variable, the covariances of each pair, and the values of the weights. Then when you have the variance, you can calculate the standard deviation fairly straightforwardly.
As I recall, Papoulis presents it, including the more general Ndimensional case, step by step. (ref)
As I recall, Papoulis presents it, including the more general Ndimensional case, step by step. (ref)

 Roundtable Knight
 Posts: 229
 Joined: Thu Jul 08, 2010 2:36 pm
 Location: Boulder, CO
 Contact:
mojojojo wrote:I don't see q in that formula and p is correlation, not probability.
Code: Select all
Symbol What the OP called it What it stands for
========================================================================
Roman letter "w" w weight
Greek letter "rho" p correlation
Greek letter "sigma" q sqrt of variance
I was forced to memorize and use this formula for a while now.sluggo wrote:mojojojo wrote:I don't see q in that formula and p is correlation, not probability.Code: Select all
Symbol What the OP called it What it stands for ======================================================================== Roman letter "w" w weight Greek letter "rho" p correlation Greek letter "sigma" q sqrt of variance
I think you might have your "What the OP called it" column mixed up. Didn't he/she call "rho" probability and "sigma" correlation?
To the OP, think of the forumal as two parts. The first part relates to individual securities and the second part relating to pairs.
First part = the weight times variance
second part = 2 times weight times weight etc
Basically ou need the first part for each security and the second part for each pair ... but as pointed out this is easily explained by a quick google search.