medium · Quantitative Finance prob-stats
A symmetric 2 × 2 covariance matrix has eigenvalues λ_1 = 0.15 and λ_2 = -0.02.
What does this imply about the validity of the matrix for portfolio optimization?
- The matrix is valid provided the determinant is positive.
- The matrix is ill-conditioned but remains valid for use.
- The matrix is valid because the sum of the eigenvalues is positive.
- The matrix is invalid because it is not positive semi-definite.
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