Correlation among stock index returns, Financial Management

Correlation Among Stock Index Returns

Correlation among stock Index Returns can be defined as the extent to which the values of different types of investments move in tandem with one another in response to changing economic and market conditions. Correlation determines how related the rates of returns on indices are. Correlation is measured on a scale of -1 to +1. Investments with a correlation of +0.5 or more tend to rise and fall in value at the same time. Investments with a negative correlation of -0.5 to -1 are more likely to gain or lose value in opposing cycles.

The study of S&P indices and MSCI Indices show that over the past five years, the various equity markets around the globe have seen an increase in correlation. While the S&P 500 index, the MSCI EAFE index, the MSCI Emerging Market index, the S&P MidCap 400, and the S&P SmallCap 600 index have all posted positive trailing five-year total returns, the magnitude of the gains has varied widely. While the "500" has returned 9.5% annually over the past 5 years (through May 7), the MSCI EAFE index and the MSCI EM index have returned 17.2% and 25.9%, respectively, highlighting their powerful portfolio diversification benefits. Similarly, the S&P MidCap 400 index and the S&P SmallCap 600 index have posted returns of 12.5% and 12.6%, respectively, thereby adding value to a diversified portfolio. Hence, despite increasing directional correlation, the inclusion of a wide array of equity asset classes has significantly benefited portfolio performance.

 

Posted Date: 9/11/2012 4:59:01 AM | Location : United States







Related Discussions:- Correlation among stock index returns, Assignment Help, Ask Question on Correlation among stock index returns, Get Answer, Expert's Help, Correlation among stock index returns Discussions

Write discussion on Correlation among stock index returns
Your posts are moderated
Related Questions
Explain about the Financial risk financial risk are presumed to be constant, changing cost of each type of capital, j, over time must be affected only by changes in the supply

Determine the Financial structure of business risk Financial structure shifts toward suppliers of funds recognize a more highly levered position increased financial risk associ

Weighted Average Cost of Capital Weighted average cost of capital is the average cost of the costs of several sources of financing. Weighted average cost of capital is also kn

discuss the applicability of operating cycle to poultry business(consider broilers)

XYZ Ltd is a group of doctors, dentists, professional sports players and celebrities with excess funds who wish to find small companies with great innovative ideas and invest in th

Q. Limitation of weighted average cost of the capital? 1) Determine the Weight; the first and foremost difficulty in computing the average cost is to an easy job. This type of

The following is the existing capital structure of Company XYZ Ltd. Ordinary shares at Shs.10 par 1,000,000 Retained 800,000 12% preference shares Shs.10 par 400,000 16% loan Shs.1

How can we interpret financial ratios??

Explain the significant feature of the wealth maximisation The significant feature of the wealth maximisation criterion is that it considers is that it considers both the quali

Call provision is the right of the issuer to call back and retire the issued bonds before the maturity date. The issuer may call the bond and retire the bond by paying