Correlation vs. Risk
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Investment reports often include correlations. Following a table of correlations among mutual funds, a reporter adds, "Two funds can have perfect correlation, yet different levels of risk. For example, Fund A and Fund B may be perfectly correlated, yet Fund A moves 20% whenever Fund B moves 10%." Write a brief explanation, for someone who knows no statistics, of how this can happen. Include a sketch to illustrate your explanation.
*I am very confused about how to explain that two funds can be perfectly correlated yet have different levels of risk.
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. Investment reports now often include correlations. Following a table of correlations among mutual funds, a report adds: "Two funds can have perfect ...
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