Take the 2-minute tour ×
Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. It's 100% free, no registration required.

As in the subject, I'm interested in a math puzzle of sorts:

If stock A has a 60% chance of rising, and stocks A and B have an 80% correlation, what is the chance of stock B rising?

Would it be possible to extend this concept so that if we know the probabilities of stocks A,B,C,D rising, we can work out the probability of stock E rising, given tha stock E has some correlation to stocks A,B,C,D?

Update:

For an indepth tutorial video on the basics of probability, see the Khan Academy Tutorial Videos on Probability.

share|improve this question

1 Answer 1

up vote 7 down vote accepted

You can't determine this with just the correlation; you need to know the joint probability.

share|improve this answer
1  
Thanks, I'll do some research into this area. –  Contango Jun 3 '11 at 15:28

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.