Suppose that your estimates of annualized asset class return volatilities and return correlations are as shown...
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Suppose that your estimates of annualized asset class return volatilities and return correlations are as shown below. Asset Class Fixed Income Domestic Equity International Equity Fixed Income Domestic Equity Intl Equity 1 2 Asset Class Return Volatility Asset Return Correlations Fixed Income 1.00 -0.10 0.05 Calculate the contribution to tracking error of each trade. Trade Long Short Domestic Equity Domestic Equity Fixed Income Intl Equity Domestic Equity -0.10 1.00 0.35 Return Volatility 6% 18% 24% Trade Size 10% 10% Intl Equity 0.05 0.35 1.00 Contribution to Tracking Error Suppose that your estimates of annualized asset class return volatilities and return correlations are as shown below. Asset Class Fixed Income Domestic Equity International Equity Fixed Income Domestic Equity Intl Equity 1 2 Asset Class Return Volatility Asset Return Correlations Fixed Income 1.00 -0.10 0.05 Calculate the contribution to tracking error of each trade. Trade Long Short Domestic Equity Domestic Equity Fixed Income Intl Equity Domestic Equity -0.10 1.00 0.35 Return Volatility 6% 18% 24% Trade Size 10% 10% Intl Equity 0.05 0.35 1.00 Contribution to Tracking Error
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To calculate the contribution to tracking error of each trade we can use the formula for tracking er... View the full answer
Related Book For
Business Statistics In Practice
ISBN: 9780073401836
6th Edition
Authors: Bruce Bowerman, Richard O'Connell
Posted Date:
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