@vincentt @RaviVooda Why is weight of RFC and RFX in the formula assumed to be 1? I can memorise this but want to understand the logic behind it. Thanks!

@alta12 because there's no weighting at all. For example, in a portfolio you have 20% stock x and 80% stock y, a 10% loss in stock x only affects 20% of your portfolio hence you need to include the weight as 0.2 whereas for RFC or RFX they are considered '100% allocation' because if RFC goes down by 10% you will lose the entire 10% same goes for RFX so they are both considered 100% hence 1.

A CFA Level 3 Discussion About Currency Management: Standard Deviation Of DC...want To Understand The Logic Behind The Formula

Add A Reply

This topic has 1 reply, 2 voices, and was last updated Oct-175:09 am by vincentt.

Author

Posts
- Alta12
  Participant
  19 Oct 2017 at 5:01 am
  Up
  0
  ::
  @vincentt @RaviVooda‌
  
  Why is weight of RFC and RFX in the formula assumed to be 1? I can memorise this but want to understand the logic behind it.
  
  Thanks!
- vincentt
  Participant
  - CFA Level 3
  19 Oct 2017 at 5:09 am
  Up
  5
  ::
  @alta12 because there’s no weighting at all.
  For example, in a portfolio you have 20% stock x and 80% stock y, a 10% loss in stock x only affects 20% of your portfolio hence you need to include the weight as 0.2
  
  whereas for RFC or RFX they are considered ‘100% allocation’ because if RFC goes down by 10% you will lose the entire 10%
  same goes for RFX so they are both considered 100% hence 1.
Author

Posts

Viewing 1 reply thread

You must be logged in to reply to this topic.