Formula Question Help

CFA Level I Quant
#1

I apologize in advance if this is a dumb question or has been answered in the past. So I’ve been studying for about a week now and realized that many of the CFA questions will be based off a formula, but with the variables in different places. I’ve seen this throughout the Quant sections.

I haven’t studied in years, but does anyone have a guide to what happens with a variable switches to the opposite side of =?

I obviously know the basics like subtraction/division.

But an example is question 20 on page 235 of the Schewser book.

The question asks to find the variance of returns for stock A. The formula that you memorize is the Correlation (RA,RB) = CovRA,RB) / (σRA) (σRB)

So you need to change the formula to

Variance of A = (Cov (RA,RB) /(σRB) (Corr (RA,RB)) squared.

So basically you need to move variables to other sides, or you need to flip them around, numerator/denominator. I’m sure this will be throughout all of the CFA.

So does anyone have an easy way to remember what happens to the variables when its location is changed? in Terms of squaring, negative, etc.

I hope this makes sense.

Thanks!

#2

If you know the formula, you should be able to manipulate it in whatever way they ask. This being said, you need to know the formula. There is no short cut.

#3

Thats what I’m trying to get help on. I know the formula, but somtimes get confused when making a part variable independent and how the new formula will look.

#4

Instead do it in two steps.

realize that

  • σRA = Correlation (RA,RB) * (σRB) / Cov(RA,RB)
  • and that variance(A) = σRA^2

you need to do the opposite to move the variable to the other side. If you need to MEMORIZE this - you are starting out wrong. You need to go back to a course of basic algebra manipulation probably.