port mgmt, i have never seen this

The market index and a portfolio have a correlation coefficient of .6. What percentage of the portfolio’s total risk is systematic and what percentage is unsystematic? A) 60% 40%. B) 36% 64%. C) 40% 60%. D) 64% 36%.


can you provide explaination?

mkt index is just systematic risk/beta so 60% and rest has been diversified away - 40% Beta= corr* (sd stock/sd of markt) S

wow i had no clue how to solve this

anyone provide a LOS?

me neither ! thanks pepp

I don’t think this is the curriculum- it usually comes in regression analysis for calculating beta. Since regression is moved to L2, i think we can safely ignore it. S

answer is B. but I think its not part of curriculum, anyways… R2 is the % of total risk that is explained by the market, systematic. So, 1- R2 would be the unsystematic risk. (.6)2 = .36 or 36%.

Pepp i just encountered that exact question today in a practice test, but I don’t know what the source of the test is. Do you? I hated it and thought many questions were very poorly written

R^2 is used to explain error in regression analysis which is not part of this year’s curriculum

This is the coefficient of determination, and I believe it is still part of this year’s curriculum…nothing has changed, as far as I know.