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A Portfolio Beta Is a Weighted Average of the Betas

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Essay

A portfolio beta is a weighted average of the betas of the individual securities which comprise the portfolio.However,the standard deviation is not a weighted average of the standard deviations of the individual securities which comprise the portfolio.Explain why this difference exists.


Definitions:

Degrees of Freedom

The number of values in a calculation that are free to vary without violating any constraints.

Significant Result

A statistical outcome that indicates a low probability of observing the obtained findings by chance, suggesting the result is not due to random variation.

Meaningful Result

An outcome of statistical analysis that provides significant insight or implications, often influencing decision-making or hypothesis testing.

Effect Size

A quantifiable measure of the magnitude of a phenomenon or the strength of a relationship in a statistical analysis.

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