Any shortcuts on BAII Plus for Covariance or Variance of two asset portfolios?

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ronzo

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These formulus look quite cumbersome. Don’t know if even worth it to do it on the exam or just guess. Might waste too much time unless their is a shortcut on BA II Plus
 
Correct me if I’m wrong, but I don’t think there are any shortcuts for covariance or variance for 2 asset portfolios. You just have to memorize those formulas and solve the question in the old fashioned way :)
Here’s a link that might help you with any other shortcuts: http://www.youtube.com/watch?v=ZYUPhpY_QD0
 
there is a short cut for covariance (only for portfolio with 2 assets) which is moslty what you are asked to do so its cool.
How to do it: calculator does not give you cov directly but it does compute the two stds and correlation for you. You just have to multiply them and get cov.
In data: enter returns of asset 1 in X and those of assets 2 in Y
In stat: leave 1-V function and go to LIN when you scroll, you’ll get Std of A (in % you have to divide by 100) and Std of b (also in %),==> scroll again you will see correlation (in correct value)
Cov= correlation*stdA*stdB
you can try it
 
That’s an awesome website hamada.smaili!!! Definitely bookmarking that :)
 
Dude, my advise….memorize the formula as you will use it intensively in all levels…including some nice variations on L3 used for exchange rate and foreign assets….
 
i don’t know what the difference is, i just know that it works that way. I’ll be memorize formula later. For now Texas Instrument will do
 
1-V is one-variable statistics. Say you were given 10 prices and wanted to find the stats for that 1 variable. Std Deviation, or variance.
LIN = Linear Regression of 2 variables - and then you will find sx, sy and r (correlation) and thus find covariance.
 
Can you explain this more. I am attempting to calcuate a the standard deviation, where I am given the covariance of the two assets.
 
For Example : Two companies. Company A has a std. dev, of 30% and portforlio weight of 68% and Comp B has a std. dev of 20% and a weight of 32%.
Is it possible to solve this using our calculators?
 
The calculator based methods proposed above don’t account for the fact that a probability is associated with asset returns. For example try solving this problem:
There is a 70% chance that the economy will be good.. and if so return of A will be 30% and return of B will be 20%
There is 30% chance that the economy will be bad… and if so return of A will be -10% and return of B will be 0%.
What is the covariance?
While I’m generally a fan of using the calculator to save time and get the right answer… but in this case I feel it is better to use the formula.
If there is a problem like this on the exam I’m sure the CFA Institute will keep the numbers simple. The idea is to check your concepts… not your arithmetic skills.
Regards,
Arif Irfanullah
 
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