Correlation and Data Frequency

[bahgill]

Did the 2011 CFAI afternoon mock exam today and a little confused as to whats going on with a couple questions, namely 26 and 27. In 26 they say appraisal data leads to lower correlation than actual and the next question says high frequency data leads to lower correlation.
Isnt appraisal based data going to be low frequency data? How can both low and high frequency data lead to low correlation?

 

[Mamzell]

How or where do you get CFAI PM mock exams? Thanks

 

[Swaption11]

Correlation to what? Correlation is Cov(X,Y)/srdXstdY. If any of these variables are affected by your data collection it will change the correlation.

 

[bahgill]

Correlation to other asset classes.
The high frequency data makes sense, more data probably more volatility and maybe even a lower covariance. But appraisal data is low volatility, but is still biasing correlation downwards?

 

[sooraj]

Ok the way I understood this..
Appraisal data are smoothed and do not tend to capture correlation well enough, because there is not enough data to have a high R2..
High frequency data - here they are talking about data which are captured at close time periods. What happens is that there tends to be an autocorrelation - ie present value dependant on its own previous value.. This results in lower correlation as well..
Would be great if somebody could correct this

 

[Swaption11]

I cant seem to figure out how they arrive at this conclusion. The changes in valuation frequency would affect both the covariance and variance so making a judgment on the direction of the correlation doesnt seem mathematically appropriate. They get stuff wrong sometimes I would check the errata.