Regarding correlation calculation
Hi. I can’t find an exact answer, though I think I know it. When calculating correlation to use in calculation of beta, we should be using the risk-adjusted returns (i.e., excess returns of Ri-Rf) instead of the non-excess returns, right? I ask this because in calculating various performance measures, we take care to specify Rf-Rf. Just want to verify that we take the correlation of the excess returns, and that the outputted correlation coefficient is what is then used in calculating beta.
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