Can someone touch on the effects that increasing correlation and increasing expected return have on the VaR? I believe in the EOC in that section, a question is asked on this and it’s stated that increasing return lowers the VaR, while increasing correlation (thus increasing std dev) increases VaR. This does this seem counter-intuitive to how the VaR formula is structured: VAR= {R - (z-score)(std dev)} -> wouldn’t increasing the return in the formula increase the VaR? Thx
var is loss - return is positive + more return offset loss VAR -
the z-score and std dev are larger than the R… so VAR becomes negative. If R is larger, it gets less negative.