The Standard Deviation for Stocks = 18.63 and the Standard Deviation for Bonds = 8.27. Define Correlation
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The Standard Deviation for Stocks = 18.63 and the Standard Deviation for Bonds = 8.27.
- Define Correlation coefficient and what it represents in a two-security portfolio.
- Calculate the correlation coefficient for the above asset allocation.
- At what level do we have perfect negative correlation and what would that mean?
- At what level do we achieve perfect positive correlation and why would we avoid this for diversification purposes?
- According to Bodie Kane and Marcus, what would be an acceptable level of negative correlation for the effective diversification of a portfolio?
- What does the image below illustrate?
- Why would we want to gauge diversification in this manner?
Related Book For
Stats Data and Models
ISBN: 978-0321986498
4th edition
Authors: Richard D. De Veaux, Paul D. Velleman, David E. Bock
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