"**Variance-covariance matrix**" is the correct answer because it's the standard method in portfolio theory to represent the covariance between multiple assets. Here's why:
* **Covariance's Role:** Covariance measures how two assets' returns move together. A positive covariance indicates they tend to move in the same direction, while a negative one suggests they move oppositely.
* **Beyond Two Assets:** When you have more than two stocks, you need to consider the covariance between each pair. A matrix neatly organizes this information.
* **Matrix Structure:** In a variance-covariance matrix:
* The diagonal displays the variance of each individual asset.
* The off-diagonal elements represent the covariance between each pair of assets.
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