Overview
In order to fully assess the risk of a portfolio, one needs to understand how the assets in that portfolio are correlated. For a portfolio of credit assets, the default correlation is a critical variable in calculating total risk.
Measured Correlations
The following script follows the math detailed in default correlation to calculate an estimate of the correlations between defaults in the given portfolio.
Next Step
Once we understand the probability of loan default, we next need to understand the loss once a loan has defaulted.