seminar: timely topics for today’s business world

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

Correlation

January 2017

2

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

CorrelationIn the world of finance, a statistical

measure of how two securities move in relation to each other.

Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1.

3

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

CorrelationPerfect positive correlation (a correlation co-efficient of +1) implies that

as one security moves, either up or down, the other security will move in lockstep, in the same direction.

Perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move in the opposite direction.

If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random.

In real life, perfectly correlated securities are rare, rather you will find securities with some degree of correlation

4

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

Correlation TablesCorrelation, or Covariance, Tables, provide data

which feeds overall risk measurement of a portfolio of assets

Mixing assets with low correlation will reduce riskAssets with high correlation will do little to reduce

overall risk

5

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

CorrelationMatrix

6

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

Correlations changeover time

7

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

Correlation among S&P 500 stocks over time

8

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

Price Regression Hedge (PRH) – KO vs PEP

9

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

Price Regression Hedge (PRH) – KO vs GOOG

10

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

Price Regression Hedge (PRH) – KO vs Bond ETF

11

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

Graph Ratio (GR)

12

Seminar: Timely Topics for Today’s Business World

Mr. Bernstein

Spread Graph Price (SGP)