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

Generally accepted accounting principles, Can the Depreciation on Assets be...

Can the Depreciation on Assets be recorded in Single Entry system? No, it cannot be possible. What do you mean by Computer Hardware? The computer is made with different co

Essentials of statistics for behavioral sciences, it seems that 14% of enga...

it seems that 14% of engaged women buy a wedding dress at least one size smaller than their current size

IFRS 9, The company acquired 50000 8% preferencd shares (with a par value o...

The company acquired 50000 8% preferencd shares (with a par value of R4 each) in cross limited on 30 june 2006 for R180000.

Statistics is the backbone of decision-making, 1. (a) 'Statistics is the ba...

1. (a) 'Statistics is the backbone of decision-making'. Describe.     (b) 'Statistics is as good as the user'. Describe. 2.  Differentiate between the following with example.

Why do organisations need a structure, Question 1: (a) The grouping of ...

Question 1: (a) The grouping of organisational activities (usually into ‘departments' or larger ‘divisions') will be done in different ways. Outline the criteria which can be u

Management accounting, Q. CRSL has a large auditorium which can cater for ...

Q. CRSL has a large auditorium which can cater for 300 people and is ideal for formal balls and functions. The auditorium can also be reconfigured to cater for 100 people. The Sea

Kolmogorov test, how can i get a free software to run a kolmogorov test?

how can i get a free software to run a kolmogorov test?

Role of statistics, what is the role of statistics in other sciences?

what is the role of statistics in other sciences?

The decision tree costs and benefits of present value, Question: Imagin...

Question: Imagine that your client, Hillside County Forest Preserve (HCFP), is considering how best to protect their natural lagoons.  They have asked for your help, and you ha

Financial accounting about Collison (1998:7), if "profit" maximisation is b...

if "profit" maximisation is biased towards maximising the interest of only one stakeholder group, would you expect that over time there will be less emphasis on profit and more emp

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