CFA Level I · CFA Level I Exam · Portfolio Risk and Return: Part I
Two assets have a covariance of 0.0090. Asset X has a standard deviation of 15% and Asset Y has a standard deviation of 20%. The correlation between the two assets is closest to:
Correlation equals covariance divided by the product of the two standard deviations. Here 0.0090 divided by 0.03 (0.15 times 0.20) gives 0.30, so the correlation is 0.30.
- A0.30
- B0.45
- C0.60Correct
Explanation
Correlation = covariance / (σX × σY) = 0.0090 / (0.15 × 0.20) = 0.0090 / 0.03 = 0.30. Wait, check: 0.15 × 0.20 = 0.03, so the result is 0.30, which is option A.
Did you get it right without looking?
One question tells you little. A timed set on Portfolio Risk and Return: Part I shows your real accuracy, how long you take and where you lose marks.
More Portfolio Risk and Return: Part I questions
- An investor holds a risky portfolio and adds a new asset with a lower expected return than the portfolio, whose correlation with the portfol…
- An investor combines a risk-free asset with a risky portfolio on the capital allocation line (CAL). The investor then borrows at the risk-fr…
- Two risky assets have a correlation of +1.0. Compared with the weighted average of the two standard deviations, the standard deviation of a …
- An investor who is risk averse is most likely to:
- Two investors hold portfolios on the same capital allocation line, but Investor X holds a higher proportion in the risky portfolio than Inve…
- Compared with a combination of two risky assets with correlation of +0.5, the same two assets with a correlation of -0.3 will most likely pr…