Examples of Correlation Matrix in the following topics:
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- Price risk is positively correlated to changes in interest rates, while reinvestment risk is inversely correlated.
- To sum up, price risk and interest rates are positively correlated.
- Reinvestment risk and interest rates are inversely correlated.
- The former is positively correlated to interest rates, while reinvestment risk is inversely correlated to fluctuations in interest rates.
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- A diversified portfolio containing investments with small or negative correlation coefficients will have a lower variance than a single asset portfolio.
- A fundamental justification for asset allocation (or Modern Portfolio Theory) is the notion that different asset classes offer returns that are not perfectly correlated, hence diversification reduces the overall risk in terms of the variability of returns for a given level of expected return.
- Although risk is reduced as long as correlations are not perfect, it is typically forecast (wholly or in part) based on statistical relationships (like correlation and variance) that existed over some past period.
- A diversified portfolio containing investments with small or negative correlation coefficients will have a lower variance than a similar portfolio of one asset type.
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- The matrix structure groups employees by both function and product.
- A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of strengths and make up for weaknesses of functional and decentralized forms.
- An example would be a company that produces two products, "product a" and "product b. " Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting department, "product b" sales department, "product b" customer service department, "product b" accounting department.
- Matrix structure is amongst the purest of organizational structures – a simple lattice emulating order and regularity demonstrated in nature.
- Some common structures are the functional, divisional, matrix, team, network, and modular structures.
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- An investor can reduce portfolio risk by holding combinations of instruments which are not perfectly positively correlated (correlation coefficient).
- Co-variances can be thought of as correlations.
- If there is zero correlation among all three fruits, we have cut our risk in thirds by owning all three, but if they are perfectly correlated, we haven't diversified away any of our risk.
- In reality, they are probably positively correlated, since they are all fruits, but not at all perfectly.
- The formula shows that the overall variance in a portfolio is the sum of each individual variance along with the cross-asset correlations.
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- A portfolio's Beta is the volatility correlated to an underlying index.
- A portfolio's Beta is the volatility correlated to an underlying index.
- A Beta of zero in this situation doesn't necessarily mean a risk free asset, it simply means that it is not correlated with the benchmark.
- But let's say you have $300,000 to invest; you could put that in a fund that is indexed to the S&P 500 and is perfectly correlated with it.
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- Recall that Beta is a number describing the correlated volatility of an asset or investment in relation to the volatility of the market as a whole.
- It is able to accomplish this because the correlation coefficient, R, has been removed from Beta.
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- Diversification relies on the lack of a tight positive relationship among the assets' returns, and works even when correlations are near zero or somewhat positive.
- On the flip-side, hedging is the tactic that relies on negative correlations among assets.
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- The correlation of 0.769 suggests that the volatility of the stock market in one month is very highly correlated to that in the previous month.
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- Yield curves on bonds and government provided securities are correlative, and are useful in projected future rates.
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- It might further seek to determine correlations and assign probabilities to the scenarios (and sub-sets if any).