COMMERCE 2FA3 Chapter Notes - Chapter 3: Capital Asset Pricing Model
15 Apr 2015
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Comm 2fa3 - chapter 3 notes: risk is the key building block of finance. Ex ante vs. ex post: what occurs ex post is not the same as what was expected ex ante, ex ante: before the fact, expected return, looking ahead, ex post: after the fact, actual return, looking back, e. g. you expect a stock to generate a 20% return but actually returns only 5% Portfolio: group of securities or stocks (two or more) held by the same individual: correlation: sees if realizations of one variable tend to be related to realizations of the second, correlation between variables x and y can be written as correl(x, y, examples: rolling 2 dice = 0 correlation, rain and crop yield = positively correlated, and optimism and unemployment = negatively correlated, therefore, correlations are always between 1 and 1 or 1 correl(x ,y ) 1.
