
Explanation:
Using equation:
Then:
Where , ,
Therefore,
The mean reversion rate of 82.1% increases correlation of 31.26% in April 2011 to an expected correlation of 48.78% in May 2011.
Ultimate access to all questions.
No comments yet.
Q.2835 A correlation data has a long-term mean of 52.6%. The averaged correlation was again observed as 31.26% in April 2011 for the monthly average 30 x 30 Dow correlation matrices. Given that the average mean reversion was 82.1% from the regression function for 40 years, what is the expected correlation one month later?
A
23.56%
B
32.21%
C
48.78%
D
38.23%