Open dschenck opened 1 year ago
In the case of 100% shrinkage, all stocks will have the same variance (total risk) and zero correlation, and therefore beta (systematic risk)
Yes agreed 😊
My question was more, why should you not use the estimator from sklearn?
In the sklearn approach, all stocks have zero systematic risk and in a portfolio with large number of stocks it is possible to reduce its risk to zero or significantly underestimate portfolio risk
The proposed in "Honey, I Shrunk the Sample Covariance Matrix" approach preserves the systematic risk of the portfolio
Hi - what do you mean in the below (found on your README) ?