October 14, 2003

Stocks and Bonds - Covariance and Correlation

The setup:

Pa140004a.jpg

Apply some rules:

Pa140005b.jpg

Pa140007a.jpg

Use the variance of a sum rule to evaluate possible portfolios containing stocks and bonds:

PA140005c.JPG

We could also have gotten this directly:

Pa140003a.jpg

There is a negative 60% correlation between stocks and bonds.

Pa140002a.jpg


Posted by bparke at 02:39 PM