Vol. 3, Pg 244, all the way at the bottom: “In general, a pairwise correlation above 0.95 is undesirable”. I agree with this, but why 0.95 as the cutoff? Isn’t that a bit too high? I would have thought something much lower than that. Pg. 395, Answer 1.D, Could some pls. explain this? They first say that if correlation between the asset return in local currency and exchange rate movement is low enough, currency risk may actually reduce the asset risk. Then, they go on to say, in cases when the correlation is zero or positive, asset risk in dollars is higher than asset risk in local currency because of currency risk. It feels like both sentences are talking about the same thing, but whats the difference between the “low” in the first sentence and “zero or positive” in the second? Thanks
> thing, but whats the difference between the “low” > in the first sentence and “zero or positive” in > the second? Not have book in front of me, so a guess: low = --> -1 ?
I was thinkin bout that…but -1 is an extreme. It’s a very vague comment they have on the book. Anyone?