PORTFOLIO ANALYSIS (Asset Allocation) Asset Allocation Weights (W%) Stocks (Ws) = 50% Bonds (Wb) = 50% Scenario (S) Probability (p) ROR % (rs) p*rs % Deviation Square for Exp. Deviation Ret. (SD) (Dev.) Dev^2 COVARIANCE & CORRELATION Stocks Bonds (Deviatio (Deviatio n from n from Ds * Db the the mean) mean) p * SD Covariance [p" (Ds*Db) Recession (S) Normal (Sn) Boom (Sb) 35.0% 40.0% 25.0% 100.0% Quest 5 % Variance Quest 6 % Covariance Correlation coefficient = Quest 7 PORTFOLIO ANALYSIS (Asset Allocation) Asset Allocation Weights (W%) Stocks (Ws) = 50% Bonds (Wb) = 50% Scenario (S) Probability (p) ROR % (rs) p*rs % Deviation Square for Exp. Deviation Ret. (SD) (Dev.) Dev^2 COVARIANCE & CORRELATION Stocks Bonds (Deviatio (Deviatio n from n from Ds * Db the the mean) mean) p * SD Covariance [p" (Ds*Db) Recession (S) Normal (Sn) Boom (Sb) 35.0% 40.0% 25.0% 100.0% Quest 5 % Variance Quest 6 % Covariance Correlation coefficient = Quest 7