If i have a portfolio of stocks from different currencies and i want to generate a correlation matrix from the stocks, how is the correct procedure ?
Imagine a portfolio which the base currency is Brazilian Reais (BRL) and i have stocks quoted in BRL, EUR and USD. The correct way to generate a correlation matrix is :
a) Use the returns on the stocks in each currency and generate the matrix
b) Adjust all returns to the portfolio base currency and then generate the matrix
c) Other Solution