FIN401-Chapter 6 (exam 2)

Deviation of returns for security j correlation

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Unformatted text preview: f returns for security j Correlation Coefficient Correlation Portfolio risk depends on the correlation Portfolio between the returns of the assets in the portfolio portfolio Statistical measure of relative comovements between security returns Bounded by -1 and +1 Correlation Coefficient Correlation When does diversification pay? Combining securities with perfect positive Combining correlation provides no reduction in risk correlation Combining securities with zero correlation Combining reduces the risk of the portfolio reduces What if the securities are perfectly What negatively correlated? negatively Calculating Por...
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