Question
Use the Variance-Covariance Matrix Data Below to Answer the following questions (the diagonal data represents variances and off-diagonal data represents covariance. A B C Market
Use the Variance-Covariance Matrix Data Below to Answer the following questions (the diagonal data represents variances and off-diagonal data represents covariance.
|
| A | B | C | Market |
| A | .04 | .08 | .04 | .06 |
| B | .08 | .16 | .06 | .06 |
| C | .04 | .06 | .09 | .12 |
| Market | .06 | .06 | .12 | .16 |
|
| A | B | C | Market |
| A | Var (A) | COV(A,B) | COV(A,C) | COV(A,M) |
| B | COV(A,B) | Var (B) | COV(B,C) | COV(B,M) |
| C | COV(A,C) | COV(B,C) | Var (C) | COV(C,M) |
| Market | COV(A,M) | COV(B,M) | COV(C,M) | Var (M) |
a.) What is the correlation of stock A and stock C?
b.) What is the correlation of stock B and C?
c.) Which two stocks would not reduce risk if placed together in a portfolio? Why?
d.) What stock/stocks would offer the most diversification?
e.) Which stock has the most unsystematic risk?
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Personal Finance And Investments
Authors: Keith Redhead
1st Edition
0415428629, 978-0415428620
