If I say, I have two assets with different returns, and the standard deviation of the returns of asset A is x and standard deviation of the returns of Asset b is y, what does that mean? Also what does "correlation between the two returns of the 2 assets" mean?
2007-02-22 19:35:23 · 2 answers · asked by elspringster 2 in Science & Mathematics ➔ Mathematics
Standard deviation is the most common way to measure the spread of data around the mean (average). One of your assets may have wildly fluctuating returns whereas the other might always be nearly the same. The first would have s large s.d. the other a very small s.d. You can get the formula for calculating it from many sources.
Correlation between the asset returns means to what extent are they connected, i.e. when one goes up does the other go up as well (positive correlation) or does it go down (negative correlation). Of course the connection may not be precise. When one goes up the other may usually go up but occasionally go down. The correlation figure measures the strength of the connect, +1 means perfect positive connection, -1 perfect negative connection. A correlation of zero means that the two things went up and down without any apparent connection. Again you can get the formula for working it out from the usual sources.
2007-02-22 21:35:00 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Both statistic are very important for invest in stock market and any other option. Help of these two you can check your investment is risky or safe.
2016-05-24 01:31:53 · answer #2 · answered by Anonymous · 0⤊ 0⤋