An investor has $100 to invest, and two investments between which to divide it. If she invests the entire amount in the first investment, her return will be X, while if she invests the entire amount in the second investment, her return will be Y. Both X and Y have mean $6 and standard deviation (risk) $3. The correlation between X and Y is 0.3. a) Express the return in terms of X and Y if she invests $30 in the first investment and $70 in the second. b) Find the mean return and the risk if she invests $30 in the first investment and $70 in the second. c) Find the mean return and the risk, in terms of K, if she invests $K in the first investment and $(100 − K) in the second. d) Find the value of K that minimizes the risk in part (c). e) Prove that the value of K that minimizes the risk in part (c) is the same for any correlation ρX,Y with ρX,Y ≠ 1.
Correlation
Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.
Linear Correlation
A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.
Regression Analysis
Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
An investor has $100 to invest, and two investments between which to divide it. If she invests the entire amount in the first investment, her return will be X, while if she invests the entire amount in the second investment, her return will be Y. Both X and Y have mean $6 and standard deviation (risk) $3. The
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