Financial Risk Manager Part 1

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Explanation:

The correlation coefficient is calculated using the formula:

\text{Corr}(R_A, R_B) = \frac{\text{Cov}(R_A, R_B)}{\sigma_A \sigma_B}

Where:

Calculation:

\text{Corr}(R_A, R_B) = \frac{0.315}{0.7246 \times 0.7937} = \frac{0.315}{0.575} ≈ 0.5477

Key points:

Variance must be converted to standard deviation by taking the square root
Correlation coefficient ranges from -1 to +1
The covariance of 0.315 is positive, indicating positive correlation
The result of 0.5477 shows a moderate positive correlation between the two portfolios

Explanation:

The correlation coefficient is calculated using the formula:

\text{Corr}(R_A, R_B) = \frac{\text{Cov}(R_A, R_B)}{\sigma_A \sigma_B}

Where:

Calculation:

\text{Corr}(R_A, R_B) = \frac{0.315}{0.7246 \times 0.7937} = \frac{0.315}{0.575} ≈ 0.5477

Key points:

Variance must be converted to standard deviation by taking the square root
Correlation coefficient ranges from -1 to +1
The covariance of 0.315 is positive, indicating positive correlation
The result of 0.5477 shows a moderate positive correlation between the two portfolios

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NNikitesh

Last updated: June 15, 2026 at 14:02

0.8257

22.2%

0.0011

11.1%

0.5477

44.4%

0.9524

22.2%