4:01 Hi Prof, bit unclear on the usage of covariance to calculate systematic risk, whereas std. deviation was used for portfolio risk up until now to estimate risk-return relationship and CAL
Well, that's the big change when you get to CAPM. In the video on systematic versus non-systematic risk we draw the conclusion that for a well-diversified portoflio, only systematic risk should be relevant and that's what the covariance attempts to capture.
Ok, this is explained in 10:30 or so. The first term is the slope and then you need to multiply by cov to scale up for the actual distance on the horizontal axis👍
it is kind of crazy how we always keep changing the name of the same line with a few differences. goes through global min. variance portfolio- capital allocation line ---> GMV portfolio not practically possible to find so just use a market portfolio- capital market line ---> unsystematic risk is not rewarded for- security market line
@letmeexplaincfa never thought of evolution in finance but now that i think of it after what u just said and recalling everything taught in this reading, it seems quite interesting
Do you if we could use the other formula for Beta in this case: Corr(i, m)*stddev(i)/stddev(m) I tried using the relationship between corr and cov to calculate correltation but it resulted in a corr >1
Thank you sir for bridging this gap in my mind. I used to always wonder what my teacher is say but now I am able to understand it
Wonderful, I am very happy to hear this🙏
This video deserves more views. Thank you!
🙏
Explanation great as always, Wojciech! Looking forward new videos :)
Yes, analysts still use this framework :)
4:01 Hi Prof, bit unclear on the usage of covariance to calculate systematic risk, whereas std. deviation was used for portfolio risk up until now to estimate risk-return relationship and CAL
Well, that's the big change when you get to CAPM. In the video on systematic versus non-systematic risk we draw the conclusion that for a well-diversified portoflio, only systematic risk should be relevant and that's what the covariance attempts to capture.
oh that's how they created the beta ! thank you so much for this very much detailed explanation
You are very welcome😀
sir this is a complex topic but thank you for taking the time to explain this.
You are very welcome!
all clear, just why did we multiply the equation with Cov i, m?
Ok, this is explained in 10:30 or so. The first term is the slope and then you need to multiply by cov to scale up for the actual distance on the horizontal axis👍
Awesome
Thank you!
it is kind of crazy how we always keep changing the name of the same line with a few differences. goes through global min. variance portfolio- capital allocation line ---> GMV portfolio not practically possible to find so just use a market portfolio- capital market line ---> unsystematic risk is not rewarded for- security market line
Yes, it is. But it shows the progression which was made since the 1950s in terms of how we view and understand the risk factors which drive returns
@letmeexplaincfa never thought of evolution in finance but now that i think of it after what u just said and recalling everything taught in this reading, it seems quite interesting
Do you if we could use the other formula for Beta in this case: Corr(i, m)*stddev(i)/stddev(m)
I tried using the relationship between corr and cov to calculate correltation but it resulted in a corr >1
Very clear! thank you
You are very welcome!
ahhhhhh you are so cute!! also good content
😜