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Question 39/145
James Johnson has a $1 million long position in ThetaGroup with a VaR of 0.3 million, and $1 million long position in VolgaCorp with a VaR of 0.4 million. The returns of the two companies have zero correlation.
What is the portfolio VaR?
What is the portfolio VaR?
Correct Answer: C
The portfolio VaR when the returns of two assets are uncorrelated can be calculated using the formula:
Portfolio VaR=(VaR of ThetaGroup)2+(VaR of VolgaCorp)2Portfolio VaR=(VaR of ThetaGroup)2+(VaR of Vo Plugging in the values:
Portfolio VaR=(0.3)2+(0.4)2=0.09+0.16=0.25=0.5Portfolio VaR=(0.3)2+(0.4)2=0.09+0.16=0.25=0.5 So, the portfolio VaR is $0.5 million.
Portfolio VaR=(VaR of ThetaGroup)2+(VaR of VolgaCorp)2Portfolio VaR=(VaR of ThetaGroup)2+(VaR of Vo Plugging in the values:
Portfolio VaR=(0.3)2+(0.4)2=0.09+0.16=0.25=0.5Portfolio VaR=(0.3)2+(0.4)2=0.09+0.16=0.25=0.5 So, the portfolio VaR is $0.5 million.
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