An analyst develops the following covariance matrix of returns: Hedge Fund Hedge Fund Market Index 0.0289 0.00765 Market Index 0.00765 0.0225 Calculate the correlation of returns between the hedge fund and the market index.

An analyst develops the following covariance matrix of returns: Hedge Fund Hedge Fund Market Index 0.0289 0.00765 Market Index 0.00765 0.0225 Calculate the correlation of returns between the hedge fund and the market index.

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 4LO

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Question

An analyst develops the following covariance matrix of returns:
Hedge Fund
Hedge Fund
Market Index
0.0289
0.00765
Market Index
0.00765
0.0225
Calculate the correlation of returns between the hedge fund and the market index.

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Step 1: Covariance and correlation between 2 assets

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Step 2: Calculation of standard deviation of Hedge Fund and Market Index

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Step 3: Calculation of correlation coefficient

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