Co-relation, statistics, Basic Statistics

Assignment Help:
Co-relation:
Co-relation in this case studies the behavior how each of the investment opportunity would react to any event vis – a vis each other. The same is measured in terms of co-relation coefficient. This gives the opportunity to the investor to diversify the investment and thus mitigate the risk.
Diversification is most effective when the correlation between the investments is –1 and it is least effective when the correlation is +1. As a result, if you want to reduce the risk of your portfolio as much as possible, you need to look for pairs of investments that have a correlation close to –1. A positive correlation means that two markets will move in tandem with each other. An up-move in one market will occur with an up-move in another market.
In our case correlation is 0.62 which is positive correlation indicating same direction for both markets. Thus investment in both markets will not help in reducing overall risk of portfolio.

Thus considering mean, standard deviation and correlation coefficient of both the markets it is advisable to invest in S&P market since it has positive rate of return with lower standard deviation. Further positive correlation coefficient does not suggest that diversification will result in reduction of risk.

Related Discussions:- Co-relation, statistics

Define mortality, Define Mortality: The following rates are used for measur...

Define Mortality: The following rates are used for measuring mortality. Crude death rate The annual crude death rate is defined as  Crude death rate = annual deaths / annual

Capital budget, Capital budget The piece of a budget: a separate budget: d...

Capital budget The piece of a budget: a separate budget: dedicated to proposed additions to capital assets & the means of financing to those additions,

Adaptations, what are flatworms adaptations

what are flatworms adaptations

What is the minimax regret and probabillity, Flifla sells tomatoes every da...

Flifla sells tomatoes every day in Suk al Marqazi, the downtown fruit and vegetable market. He finds that he can order tomatoes in crates of 25 kg and he is able to stock a maximum

Explain what is signal reliability ration, A. If CD players are able to use...

A. If CD players are able to use the LDD strategy better than pure chance then explain what happens to the signal reliability ration as a CD player detects more cautiously B. As

Motion of a plane, what is newton''s law of motion & application?

what is newton''s law of motion & application?

Index numbers, What are the advantages and disadvantages of index numbers

What are the advantages and disadvantages of index numbers

Calculates the value of variance and standard deviation, You are a psycholo...

You are a psychologist who has collected the subjective well-being scores of a number of elderly people aged 90 or above who are residents of an independent living facility or who

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd