Do you apply some weighting to historical data?

Yes, we want more recent data to have more weight. Events that happened in the far past have less bearing on what might happen in the near future. We apply 2 different weighting schemes: one for the volatilities of the securities and one for the correlation.

Volatilities have shorter memory: in 2 months, the importance of the information is half of today’s.

Correlations have longer memory: in 6 months the importance of the information is half.