Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 6%, and the market's average return was 14%. Performance is measured using an index model regression on excess returns. Stock A Index model regression estimates 1%+1.2(Rm-Rf), R-square 0.576, Residual standard deviation 10.3%, Standard deviation of excess returns 21.6%. Stock B Index model regression estimates 2%+0.8(Rm-Rf), R-square 0.436, Residual standard deviation 19.1%, Standard deviation of excess returns 24.9%. a. Calculate the following statistics for each stock: i. Alpha ii. Information ratio iii. Sharpe ratio iv. Treynor measure
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.
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 6%, and the market's average return was 14%. Performance is measured using an index model regression on excess returns. Stock A Index model regression estimates 1%+1.2(Rm-Rf), R-square 0.576, Residual standard deviation 10.3%, Standard deviation of excess returns 21.6%. Stock B Index model regression estimates 2%+0.8(Rm-Rf), R-square 0.436, Residual standard deviation 19.1%, Standard deviation of excess returns 24.9%.
a. Calculate the following statistics for each stock: i. Alpha ii. Information ratio iii. Sharpe ratio iv. Treynor measure
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