medium · Quantitative Finance

In the two-asset case with volatilities σ_1, σ_2 and correlation ρ, what does the denominator of the weight formula σ_1^2 + σ_2^2 - 2ρσ_1σ_2 represent in matrix terms?

1. The trace of the covariance matrix.
2. The sum of all elements in the covariance matrix Σ for the weights (1, -1).
3. The determinant of the 2 × 2 covariance matrix.
4. mathbf1^top Σ mathbf1 for a specific long-short vector.

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