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

What is accounting system , The methods and records established to recogniz...

The methods and records established to recognize, set up, evaluate, move, record, and report the state’s purchases and to maintain responsibility for its obligations and resources

Cash discount., Cash discount A payment received, given if payment is comp...

Cash discount A payment received, given if payment is completed within a stated age of occasion, Refer to TRADE DISCOUNT,

Estimate of the population mean, Playbill magazine reported that the mean a...

Playbill magazine reported that the mean annual household income of its readers is $119,155 (Playbill, January 2006). Assume this estimate of the mean annual household income is ba

Exploratory analysis of the data, The Home Improvement Company (HIC) operat...

The Home Improvement Company (HIC) operates five stores in a large regional area. The company wished to study the relationship between x, house value ($'000) and Y, yearly expendit

Fluid mechanics, Find the kinematic and dynamic viscosities of air at a tem...

Find the kinematic and dynamic viscosities of air at a temperature of 189°F and a pressure of 29 psia using Sutherland''s equation and the ideal gas law .

Material & labour variances, standard material qty per unit- 2 kg standard ...

standard material qty per unit- 2 kg standard price per kg - 4 rs actual value of material purchased- 4000 rs closing stock- 200 kg actual usage- 2.5 kg finished stock sold- 200 u

Estimate the probability , The Video Club Martin rents movies at "regular p...

The Video Club Martin rents movies at "regular price" andat  "half price". Usually if the films are regularly priced one day, they will be at regular price the next day with probab

Capital outlays, Capital outlays A budgetary, financial reporting term to ...

Capital outlays A budgetary, financial reporting term to end out the expenditures for the acquisition of: addition to:, chief repair of capital assets intended to advantage prospe

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