Correlation of portfolio formula

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The correlation coefficient helps you understand the strength of the relationship between two different variables. Using it can help you understand how a stock is performing relative to its peers or the rest of the industry, as well as create more diversification within your portfolio. The range for the correlation coefficient is -1.0 to 1.0.

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Portfolio beta is a measure of the overall systematic risk of a portfolio of investments. It equals the weighted-average of the beta coefficient of all the individual stocks in a portfolio.. While variance and standard deviation of a portfolio are calculated using a complex formula which includes mutual correlations of returns on individual investments, beta coefficient of a portfolio is the ...

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w A,w B,w C = Portfolio weights on assets. s 2 A,s 2 B,s 2 C = Variances of assets A, B, and C. r AB, r AC, r BC = Correlation in returns between pairs of assets (A&B, A&C, B&C) The Data Requirements. Number of covariance terms = n (n-1) /2. where n is the number of assets in the portfolio. Number of Covariance Terms as a function of the number ...Portfolio Standard Deviation is calculated based on the standard deviation of returns of each asset in the portfolio, the proportion of each asset in the overall portfolio i.e., their respective weights in the total portfolio, and also the correlation between each pair of assets in the portfolio. A high portfolio standard deviation highlights ...and the rate of return for this portfolio, in equilibrium, will be the risk-free rate. To find the proportions of this portfolio [with the proportion w A invested in Stock A and w B = (1 - w A ) invested in Stock B], set the standard deviation equal to zero. With perfect negative correlation, the portfolio standard deviation is: σ P ...

With this formula, we can use estimates of the covariance and overall portfolio variance to calculate the MCTR. Additionally, we can substitute back into the first equation for volatility and rearrange to get: where ρ(r i, R) is the correlation between the i th asset return and the overall portfolioportfolio, muting the effect (positive or negative) on ... • Correlation: a scaled measure of covariance between two random variables (scaled to 1). A correlation ... • This is the equation of a straight line. • What implications does it have for the efficient frontier,•58 Assets may differ in expected rates of return and individual standard deviations •59 Negative correlation reduces portfolio risk •60 Combining two assets with +1.0 correlation will not reduces the portfolio standard deviation •61 Combining two assets with -1.0 correlation may reduce the portfolio standard deviation to zero Highlights: A portfolio of less than perfectly correlated ...