State a definition of “diversification” in terms of correlation, explained by theory.
State a definition of “diversification” in terms of correlation, explained by theory.
Homework Answers
The term diversification with reference to correlation refers to a situation when you have many stocks in your portfolio and they are negatively correlated. If the stocks are negatively correlated then even if the individual risk of the stocks might be high but the overall risk of the portfolio would be less, this is because the negative return of one stock would be offset by another stock who price movement is negatively correlated and moves in other direction.
Let’s take an example where you have Securities A with Standard deviation of 20%, B with Standard deviation of 25% and C with Standard deviation of 25%, and if correlation (A, B) = 0.80 and correlation (A, C) = -0.80. Now if you create a portfolio of either A and B or A and C then the overall risk of the portfolio would in case of A and C would be less than A and B, because stocks A and C are negatively correlated.
Having stocks in a portfolio which are negatively correlated can significantly reduce the risk of the security.
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State a definition of “diversification” in terms of
correlation, explained by theory.
1. Briefly discuss Financial State Preference Theory in terms of Uncertainty and Alternative scenarios as they...
1. Briefly discuss Financial State Preference Theory in terms of Uncertainty and Alternative scenarios as they are delivered and/or occur in Pure Capital Market Securities and Portfolios. 2. What does Copeland, et al present in terms of financial Objectives of Choice in Mean- Variance Portfolio Theory and Analysis? Briefly discuss the authors directions relative to Diversification and Optimality of Portfolio Choices for individuals, Assets and optimal Portfolios. 3. Provide a brief discussion of at least two Cost of Capital budgeting...
Which of the following is the best definition of principle of diversification? O a. Positively sloped...
Which of the following is the best definition of principle of diversification? O a. Positively sloped straight line displaying the relationship between expected return and beta. b. A risk that influences a large number of assets. Also called market risk. Principle stating that spreading an investment across a number of assets eliminates some, but not all of the risk. A theory showing that the expected return on any risky asset is a linear combination of various factors. Ос. Od Oe....
Describe how the correlation coefficient is the key factor in determining the degree of diversification benefit.
Describe how the correlation coefficient is the key factor in determining the degree of diversification benefit.
True or False: The correlation coefficient is the ratio of explained variation to total variation.
True or False: The correlation coefficient is the ratio of explained variation to total variation.
If the coefficient of correlation is 0.65, the percentage of variation in the dependent variable explained...
If the coefficient of correlation is 0.65, the percentage of variation in the dependent variable explained by the estimated regression equation is a. 0.65% b. 80% c. 0.42% d. 42.2%
Research: Correlation. Give a brief definition. Explain the concept (its purpose and how it is used)...
Research: Correlation. Give a brief definition. Explain the concept (its purpose and how it is used) in simple terms. Also, make sure to identify when it cannot be used. Provide a working example (10 points).
Instructions: The focus of this lab is portfolio theory and the impact of diversification. Use Microsoft...
Instructions: The focus of this lab is portfolio theory and the impact of diversification. Use Microsoft Excel to complete this assignment. Submit your Excel file and Word file online in Blackboard for grading. There are up to 5 points possible to Exam 1. Due by Friday, Ianuary.25, 2019 by 11pm. Absolutely, no late work will be accepted. Suppose you have the following information about two securities St Expected Sta Return Deviation 20% 45% 1. Using Microsoft Excel, create a spreadsheet...
consider the reaction... Explain the reaction in terms of the Lewis' acid-base theory. Explain 3 significant...
consider the reaction... Explain the reaction in terms of the
Lewis' acid-base theory.
Explain 3 significant ways in which the Bronsted-Lowry theory
and the Arrhenius theory differ in their definition of acids and
bases.
Now go back to the product in part 6a and explain the kind of
isomerism that the compound displays and why such isomerism
arises.
[Ni(en)3]2+(aq) c. Considerthe reaction, Explain the reaction in terms of the Lewis' acid-base theory Ni2+ (aq) +3(NHzCH2CH2NHz) (aq) 6a. 6b.Explain 3 significant...
explain Mohr & Coulomb theory . its limitations . explained modified theories also.
explain Mohr & Coulomb theory . its limitations . explained modified theories also.
If the coefficient of correlation is 0.8, the percentage of variation in the dependent variable explained by the estimated regression equation is
If the coefficient of correlation is 0.8, the percentage of variation in the dependent variable explained by the estimated regression equation is a. 0.80% b. 80% c. 0.64% d. 64%
1. Briefly discuss Financial State Preference Theory in terms of Uncertainty and Alternative scenarios as they are delivered and/or occur in Pure Capital Market Securities and Portfolios. 2. What does Copeland, et al present in terms of financial Objectives of Choice in Mean- Variance Portfolio Theory and Analysis? Briefly discuss the authors directions relative to Diversification and Optimality of Portfolio Choices for individuals, Assets and optimal Portfolios. 3. Provide a brief discussion of at least two Cost of Capital budgeting...
Which of the following is the best definition of principle of diversification? O a. Positively sloped straight line displaying the relationship between expected return and beta. b. A risk that influences a large number of assets. Also called market risk. Principle stating that spreading an investment across a number of assets eliminates some, but not all of the risk. A theory showing that the expected return on any risky asset is a linear combination of various factors. Ос. Od Oe....
Instructions: The focus of this lab is portfolio theory and the impact of diversification. Use Microsoft Excel to complete this assignment. Submit your Excel file and Word file online in Blackboard for grading. There are up to 5 points possible to Exam 1. Due by Friday, Ianuary.25, 2019 by 11pm. Absolutely, no late work will be accepted. Suppose you have the following information about two securities St Expected Sta Return Deviation 20% 45% 1. Using Microsoft Excel, create a spreadsheet...
consider the reaction... Explain the reaction in terms of the
Lewis' acid-base theory.
Explain 3 significant ways in which the Bronsted-Lowry theory
and the Arrhenius theory differ in their definition of acids and
bases.
Now go back to the product in part 6a and explain the kind of
isomerism that the compound displays and why such isomerism
arises.
[Ni(en)3]2+(aq) c. Considerthe reaction, Explain the reaction in terms of the Lewis' acid-base theory Ni2+ (aq) +3(NHzCH2CH2NHz) (aq) 6a. 6b.Explain 3 significant...
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