Spatial correlation of annual earthquake ground motions and losses can be used to estimate the variance of annual losses to a portfolio of properties exposed to earthquakes. A direct method is described for the calculation of the spatial correlation of earthquake ground motions and losses. Calculations for the direct method can be carried out using either numerical quadrature or a discrete, matrix-based approach. Numerical results for this method are compared with those calculated from a simple Monte Carlo simulation. Spatial correlation of ground motion and loss is induced by the systematic attenuation of ground motion with distance from the source, by common site conditions, and by the finite length of fault ruptures. Spatial correlation is also strongly dependent on the partitioning of the variability, given an event, into interevent and intraevent components. Intraevent variability reduces the spatial correlation of losses. Interevent variability increases spatial correlation of losses. The higher the spatial correlation, the larger the variance in losses to a portfolio, and the more likely extreme values become. This result underscores the importance of accurately determining the relative magnitudes of intraevent and interevent variability in ground-motion studies, because of the strong impact in estimating earthquake losses to a portfolio. The direct method offers an alternative to simulation for calculating the variance of losses to a portfolio, which may reduce the amount of calculation required.

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