Port Mgmt question market, between, question, percentage

mkytz15

Assume the correlation coefficient between CSCO and the market is 0.40. What percentage of CSCO's total risk is idiosyncratic (ie nonsystematic) (round your answer to nearest $)?

a) 40%
b) 60%
c) 16%
d) 84%
e) none of the above.

ppls

Answer is e. You need to know the standard deviations of CSCO and Market.

ayaz_mahmud369

Answe is d, because the coefficient of determination tells you how much is explained by the regression, the rest which is 84% is due to something else.

jacksparrow

In a simple regression R^2 can be approximated to Rho^2, so R^2 =16% which means that the idiosyncratic risk is 84%