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Computing correlations between stocks

Computing correlations between stocks - Microsoft Excel Tutorial

From the course: Excel for Investment Professionals

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Computing correlations between stocks

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- [Instructor] One way to reduce risk in a portfolio is to hold a broadly diversified set of investments, but to get diversification, you first have to calculate correlations between asset prices. Skip this step and you may find that a portfolio is a lot riskier than you thought it was. I'm in the zero, four, zero, three begin Excel file. What we've got here are stock prices and 90-day historical returns for five different securities. Microsoft, Apple, JPMorgan, Boeing, and the 30-year treasury bond. We've also go the market's 90-day return over time. Well, what I want to do is go through and calculate my rolling correlations between each of these securities and the treasury bond in order to see how much those move. Then we're going to go through and calculate our correlations versus the market as a whole. So to calculate my correlations, we'll just use the CORREL function. In this case, I'm calculating the correlation between Microsoft and the treasury bond, but if I wanted to…

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