10 Oct Investment strategy: This course will explore the theory and application of portfolio theory, covering the topic ar
Topic: Investment strategy [related fields: Finance]
This course will explore the theory and application of portfolio theory, covering the topic areas of investment for equity, bond, and derivatives. Furthermore, investment management will also be covered in this course. There are total 9 questions. The parts written in blue letters with investment 01, 02, and 03 respectively are parts that should have pictures related to the problem. Please refer to the attached pictures. please read carefully all the problecgxms and double-check with the calculation.
Average return = (-10% + 25% + 45%)/3 = 20% = 0.20
Var = ∑(Annual Return – Average Return)2 / N
Var = 0.155/3 = 0.051667 ~ 0.052
SD = √Var = √0.051667 = 0.227
Average return of A = (-0.05 + 0.10 + 0.16) / 3 = 0.07
Average return of B = (0.02 – 0.07 + 0.10) / 3 = 0.01666667
Cov(A,B) = ∑(Return A – Average Return A) (Return B – Average Return B) / N
Cov(A, B) = 0.0045 / 3 = 0.0015
Var(A) = ∑(Return A – Average Return A)2 / N
Var(A) = 0.0234 / 3 = 0.0078
SD(A) = √Var(A) = √0.0078 = 0.08832
Var(B) = ∑(Return B – Average Return B)2 / N
Var(B) = 0.01446667 / 3 = 0.0048222
SD(B) = √Var(B) = √0.0048222 = 0.0694
Corr(A, B) = Cov (A, B) / (SD(A) SD(B))
Corr (A, B) = 0.24458
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