Deals with specification of asset classes, and the answer states that you would criticize mid-caps because they are not mutually exclusive with respect to large & small caps. However, another answer choice (the one I incorrectly picked) was “All Commodities Index.” My issue is that the list of asset classes included another called “Agricultural Commodities Index” as well as “All Commodities Index”…so wouldn’t there be the same issue of the All Commodities not being mutually exclusive. An “All Commodities Index” would include agricultural commodities, so there would be overlap.
I think there were two correct answers here, but would love if someone could clarify and let me know what I am missing. Thanks!
Question asks for MOST likely…mid cap has a 99% correlation to the large cap while all commodities has a 55% correlation to the agricultural commodities…I think it’s a matter of degree
That makes sense, thanks. Should’ve paid closer attention to the correlations.
I understand the correlation argument. But isn’t there an overlap in all commodities index and agricultural commodity index as well? Asset classes should be mutually exclusive. I don’t think they are in this case.
Any insights?
I think there is an argument there, but you have to go with the most likely answer. The correlation between the agricultural and all commodities index is low enough that they may actually be mutually exclusive. This is CFAI world, the all commodities index could just be comprised of storables.