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Hello David,

I've seen the terms "covariance matrix" and "correlation matrix" a couple of times now, and I think I roughly know what they are and how they work, but I'm not sure as to how they apply and are being used in scenario analysis (stress testing). Also I am getting a bit overwhelmed by the covariance matrix concept used in Cholesky factorization. Can I ask for your suggestion on the readings that might help me get a solid understanding of the matrixes and how they are being used in both scenario analysis and cholesky factorization? I only read your 08' note on "stress testing" and haven't gone through the assigned readings for Jorion's "stress testing" yet, so maybe that would be a start?

Thank you!

I've seen the terms "covariance matrix" and "correlation matrix" a couple of times now, and I think I roughly know what they are and how they work, but I'm not sure as to how they apply and are being used in scenario analysis (stress testing). Also I am getting a bit overwhelmed by the covariance matrix concept used in Cholesky factorization. Can I ask for your suggestion on the readings that might help me get a solid understanding of the matrixes and how they are being used in both scenario analysis and cholesky factorization? I only read your 08' note on "stress testing" and haven't gone through the assigned readings for Jorion's "stress testing" yet, so maybe that would be a start?

Thank you!

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