Research Shows Asset Allocation Decisions Explain Approximately 90% of the Variation

question 4

True/False

Research shows asset allocation decisions explain approximately 90% of the variation in portfolio returns, whereas individual security selection explains only about 10%.

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Definitions:

Pearson Correlation

A statistical measure that evaluates the linear relationship between two continuous variables.

Critical Values

Threshold values on the scale of a test statistic beyond which the null hypothesis is rejected.

Variables

Any characteristics, number, or quantity that can be measured or counted.

Pearson Correlation

A measure of the linear correlation between two variables, ranging from -1 to 1, where 1 is total positive linear correlation, 0 is no linear correlation, and -1 is total negative linear correlation.