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Zesty

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tT
发表于 2011-7-11 19:08 | 只看该作者

Strategic asset allocation

allocation, believe, question, strategic, percentage
Hello,

I have a question about strategic asset allocation. Is there a rule of thumb I.e. A percentage threshold that stipulates a correlation between two assets are low or not?

One of the 2007 questions I was doing implied that 71pct and 80pct are low correlations between the 2 assets. I believe the question no. Was 4.

Thanks in advance!
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susana

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发表于 2011-7-11 19:08 | 只看该作者
you if given 2 assets and if is a good diversifier could calc the new std deviation- just the way back from L1 formula w^2stddev^2 + w^2stddev^2 + 2w1w2stddev1stddev2(correlation)... and see if the new std dev is lower than the old one.
i doubt the test would get much more math oriented than that. .7 or .8 on the surface to me seems like a fairly high correlation, but it's of course all relative. i don't have the test in front of me...

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ohai

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3#
发表于 2011-7-11 19:08 | 只看该作者
an asset adds value to existing portfolio if:
Portfolio-Sharpe * correlation(New-asset with portfolio) < New-asset-Sharpe

This is the relevant thumb-rule to decide if strategic allocation needs to accommodate new asset.

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