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Okay so Im a recent finance graduate, it took me 7 years, counting 2 years i took off, and honestly, i cheated in some of my classes, the ones that didnt have open book tests,
and its not like i went to a really prestigious school, so in alot of my finance classes i just memorized the equations (or programed them in my calculator) and that was enough to get me though a scantron based testing system
I feel like i never really learned finance, i mean its like I can understand the language but i don't grasp the concepts.
Ive recently been trying to fix this by reading my old finance textbooks (intermediate financial management) and trying to really soak it in.
Heres what ive learned so far
How to calculate a stocks standard deviation (The higher it is the riskier it is) and now the book is talking about finding stocks that are negativity coordinated to eliminate risk. it says that stocks are on average .28 to .35 positively coordinated, does this mean my portfolio should be around 28% positively coordinated to get risk down to a realistic level or do i seek to get the correlation as negitive as possible?
Am I learning something??
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I also need some help understanding the formula for correlation my book calls it p
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>How to calculate a stocks standard deviation
What is beta?
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>>1029205
Those are more the tools of the trade and when relevant are almost always done by computer.
If you want to really succeed and stand out you need to read between the lines. You'd be surprised to see how many people think a stock paying dividends is a good thing. Or a company holding a lot of cash. Or maybe you wouldn't, but that's the point.
Finance isn't really about crunching these numbers. Accurate results should be a way to make a decision, not the decision itself. If you could predict the next Google or Apple and invest early would you? Or would you rather predict the next dive in the market? Particularly hot high cap markets like tech. Which of those you'd choose says a lot about your finance knowledge, how to figure the beta score of Facebook or whatever matters but nowhere near as much.
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>>1029205
>the book is talking about finding stocks that are negativity coordinated to eliminate risk
Since this has yet to be answered, I'll try to explain.
Based on the context you gave, it's saying that you should find stocks which have a naturally negative correlation with (the market I assume or possibly your portfolio?) whatever or that you should take short positions so that your portfolio becomes market neutral. Basically the idea is that if you buy shares of XYZ company with a beta of .5, you should balance out the risk by shorting shares of ABC with a beta of .5 - noting that shorting something will give you a negative correlation (negative beta) with the market. You would then have a market neutral portfolio because the negative beta of .5 from ABC cancels out the positive beta of .5 from XYZ. So what I think it's telling you to perform is what could best be described as pseudo arbitrage.
If you want a better understanding of that general concept, I'd highly recommend reading pic related.
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