seminar: timely topics for today’s business world mr. bernstein correlation january 2015

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

Correlation

January 2015

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Mr. Bernstein

CorrelationIn the world of finance, a statistical

measure of how two securities move in relation to each other.

Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1.

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Mr. Bernstein

CorrelationPerfect positive correlation (a correlation co-efficient of +1) implies

that as one security moves, either up or down, the other security will move in lockstep, in the same direction.

Perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move in the opposite direction.

If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random.

In real life, perfectly correlated securities are rare, rather you will find securities with some degree of correlation

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Mr. Bernstein

Correlation TablesCorrelation, or Covariance, Tables, provide data

which feeds overall risk measurement of a portfolio of assets

Mixing assets with low correlation will reduce risk

Assets with high correlation will do little to reduce overall risk

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Mr. Bernstein

CorrelationMatrix

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Mr. Bernstein

Correlations changeover time

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Mr. Bernstein

Correlation among S&P 500 stocks over time

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Mr. Bernstein

Price Regression Hedge (PRH) – KO vs PEP

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Mr. Bernstein

Price Regression Hedge (PRH) – KO vs GOOG

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Mr. Bernstein

Price Regression Hedge (PRH) – KO vs Bond ETF

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Mr. Bernstein

Graph Ratio (GR)

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Mr. Bernstein

Spread Graph Price (SGP)

seminar: timely topics for today’s business world mr. bernstein correlation january 2015

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