Asset Correlations: Financial Maths Part IV

Understanding asset correlation is a significant step towards ensuring that your portfolio is truly diversified. This pathway will guide you through how to make the calculations that will establish your assets have low, or even negative levels of correlation.

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8 videos • 37 minutes

  • What is Covariance?

    This is the first of a series of videos that examine the relationship between two assets. There are three basic measures that are usually used - this video pertains to covariance. Abdulla explains this method by using an example and outlining the formula.

    Abdulla Javeri04:40

  • What is Correlation?

    In the second video of the series, Abdulla explains the Pearson correlation coefficient. He discusses some of its key characteristics and outlines how to use it, step-by-step, with an example.

    Abdulla Javeri04:56

  • Limitations of Correlation Measurement

    All metrics used to analyse financial markets have limitations. As you will see in this video, correlation and covariance are no different.

    Abdulla Javeri04:08

  • What is Linear Regression?

    This video is a continuation in the series where Abdulla examines whether movements in one asset are somehow related to movements in another asset. The subject of this video is linear regression, otherwise known as simple linear regression or least squares regression.

    Abdulla Javeri04:55

  • What is Beta?

    In the earlier video on the overview of linear regression, Abdulla explained the process of how to construct the regression line. In this video, Abdulla will discuss the related jargon used in financial markets and calculate the numbers for the regression line using Microsoft Excel functions.

    Abdulla Javeri05:38

  • What are the Uses of Beta?

    Beta can play a part in stock selection and hedging strategies. In this video, Abdulla explores some applications of beta in the markets.

    Abdulla Javeri05:02

  • What are the Limitations of Beta?

    When numbers are used to estimate what is likely to happen in the future, there are always limitations. In this video, Abdulla discusses the limitations of beta including evaluating its consistency, the data set used and the nature of the regression line.

    Abdulla Javeri04:13

  • Is the Regression Line Appropriate (or Good Fit)?

    From a financial markets perspective, linear regression is described as a way of looking at the relationship between returns on two assets. In this video, Abdulla demonstrates how to calculate the regression line, and evaluates its value as an estimator.

    Abdulla Javeri04:22

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