Suppose we are deciding between two alternative investments for the coming year.
ID: 3128588 • Letter: S
Question
Suppose we are deciding between two alternative investments for the coming year. The first investment is a mutual fund that consists of shares which do well when economy is strong. The second investment is a mutual fund that consists of shares that do well when economy is weak. Your estimate of returns per each investment is provided below with a probability of their occurrence. Using excel calculate the correlation between these mutual funds and interpret. Show all your work.
Economy
P(X, Y)
Strong-economy fund
Weak-economy fund
Recession
0.20
-100
200
Stable
0.45
100
50
Progressing
0.35
250
-100
Economy
P(X, Y)
Strong-economy fund
Weak-economy fund
Recession
0.20
-100
200
Stable
0.45
100
50
Progressing
0.35
250
-100
Explanation / Answer
From Excel
We conclude that there is strong negative correlation between them
Strong-economy fund Weak-economy fund Strong-economy fund 1 Weak-economy fund -0.99662 1Related Questions
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