Can some one explain WTH they mean by low pairwise correlation? does it mean with one other asset class in this case? This AM exam was worded so weird, I feel bad for those who’s first language is not English if the real exam ends up like this…
If you have, say, four asset: let’s call them A, B, C, and . . . you’re way ahead of me . . . D.
Pairwise correlations (which, as you well know, are the only kinds you can have) are the correlations (of returns, most likely) between:
- A & B
- A & C
- A & D
- B & C
- B & D
- C & D
Low ones would, of course, mean that they’re all rather close to zero.