Maintaining Consistent Global Asset Views (with a Little Help from Euclid)

Global economic and capital market integration has led to a host of new concerns for plan sponsors and money managers. In such an environment, ensuring consistent capital market expectations, policies, and strategies among different base currencies is important. A primary difficulty is translating risk and correlation estimates from the home currency into any other currency. We provide a method for converting risk and correlation views. The method makes use of a geometric interpretation of risks and correlations, dramatically simplifying the requisite calculations.