Investment Planning | Lesson 2: Portfolio Theory

Question 1

A mutual fund has a correlation coefficient of 0.80. What percent of return is due to unsystematic risk?

a) 36%.
b) 64%.
c) 80%.
d) 100%.

Answer 1

Answer: A
Correlation coefficient = 0.80
r-squared = 0.64 (0.80^2)
Therefore, 64% of the mutual funds return is due to systematic or market risk and 36% is due to unsystematic risk.