We have shown how to estimate VAR for an individual security holding but most investors hold a number of different securities or positions. They are less concerned about the changes in the value of individual holdings and more concerned about changes in the total value of all their holdings. In general, VAR for a portfolio of financial assets cannot be calculated from the simple sum of the VARs for the individual holdings.
We need to take another statistical diversion and introduce another concept, that of the correlation (or the relationship) between changes in a number of different variables.
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