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Flashcards in Statistics In Finance Deck (8)
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1
Q

How do you calculate returns?

A

Rt=(Pt-(Pt-1)+Dt)/Pt-1

Roct=(Poct-(Psept)+0)/Psept

2
Q

How do you calculate the mean return (Expected Return E[R])?

A

E(Ri)=1/T E Ri,t

3
Q

What is the equation to calculate the dispersion around the mean?

A

VAR(Ri)=1/(T-1)*(return (Rt)-expected return E(Ri))^2 [Do for each returns & then times by the 1/(T-1)

4
Q

How do you calculate the standard deviation (STD), also used as a dispersion measure?

A

STD(Ri)=Square root of the VAR(Ri)

5
Q

What is Covariance?

A

When dealing with two random variables (two investments) we are interested in the mean, variance & whether they share any relationship.

6
Q

How do you calculate covariance?

A

Using the COV equation

7
Q

What is Correlation and how do you calculate it?

A

a standardised measure of covariance, it will range between +1 and -1, it is calculated using the CORREL equation

8
Q

How do you calculate the variance without covariance?

A

Correl(A,B)=Cov(a,b)/STDa*STDb,

therefore Cov = Correl(a,b)STDaSTDb