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Could someone please explain Coefficient Variance, how it is calculated and why it is important?
Hi,
I'm not an expert here, but I think Coefficient Variance relates to coefficient of determination http://www.investorwords.com/c4.htm#coefficientofdetermination A measure of the correlation between the dependent and independent variables in a regression analysis.
regression analysis http://www.investorwords.com/r2.htm#regressionanalysis A statistical technique used to find relationships between variables for the purpose of predicting future values. see also analysis, coefficient of determination, detrend, correlation coefficient.
So the idea is you are comparing two variables to determine if their movement is related. An example would be comparing the past price movement of a stock with some index (like the S&P 500).
I don't think you'll want to do the formula yourself. Coefficient of Determination http://stat.tamu.edu/stat30x/notes/node47.html
I think an example of Coefficient Variance is beta. http://www.investorwords.com/b2.htm#beta A quantitative measure of the volatility of a given stock, mutual fund, or portfolio, relative to the overall market, usually the S&P 500. Specifically, the performance the stock, fund or portfolio has experienced in the last 5 years as the S&P moved 1% up or down. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile. see also alpha, modern portfolio theory.
modern portfolio theory Overall investment strategy that seeks to construct an optimal portfolio by considering the relationship between risk and return, especially as measured by alpha, beta, and Rsquared. also called modern investment theory. see also efficient portfolio.
So the idea is that you put together a portfolio that uses strategies that will do well in bad times and good by selecting strategies that closely correlate with the S&P 500 and ones that still have a good return but don't correlate with the S&P 500.
As I said, I'm not an expert. I hope this helps.
Keith O'Malley TMF KGOMalley
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