What is the COVARIANCE.S Function? The COVARIANCE.S Function is categorized under Excel Statistical functions. It will calculate the sample covariance for two sets of values provided by a user. As a financial modeling analyst, the COVARIANCE.S function is very useful when we want to find the extent to which two assets move in tandem –…
What is the CORREL Function? The CORREL Function is categorized under Excel Statistical functions. It will calculate the correlation coefficient between two variables. As a financial analyst, the CORREL function is very useful when we want to find the correlation between two variables, e.g., the correlation between a particular stock and a market index. Correlation…
What is the COVAR Function? The COVAR Function is categorized under Excel Statistical functions. It will calculate the covariance of two sets of values. As a financial analyst, suppose we want to see how two stocks may move together in the future. Looking at their historical prices, we can determine if the prices tend to…
What is Gamma? In the world of finance, gamma refers to the rate of change in delta. It is used more specifically when talking about options. Gamma, for options, is recorded as a percentage value; it represents how the delta of the option changes with each one-point change in the price of the underlying stock….
What is Rho? In finance, rho is a metric used to determine how sensitive an option is to risk-free interest rate changes. Arguably the least important and least used of the Greek option metrics, rho is typically expressed in a dollar amount. The metric shows how much money an option stands to gain or lose…
What is an Investment Policy Statement (IPS)? An investment policy statement (IPS), a document drafted between a portfolio manager and a client, outlines the rules and guidelines that the portfolio manager must follow when considering asset allocation in the client’s portfolio. In other words, an investment policy statement outlines how a portfolio manager is to…
What is a Hedge Fund? A hedge fund, an alternative investment vehicle, is a partnership where investors (accredited investors or institutional investors) pool money together, and a fund manager deploys the money in a variety of assets using sophisticated investment techniques. Hedge funds, unlike other funds, can utilize leverage, take short positions, and hold both…
What is a Noise Trader? A noise trader is an individual who trades based on incomplete or inaccurate data, often trading irrationally. Noise traders often make trades based on hype or rumor, rather than on solid technical or fundamental analysis or professional advice. The impact of noise traders can be significant. They cause the market…
What is the NORM.INV Function? The NORM.INV Function is categorized under Excel Statistical functions. It will calculate the inverse of the normal cumulative distribution for a supplied value of x, with a given distribution mean and standard deviation. The function will calculate the probability to the left of any particular point in a normal distribution….
What are Synthetic Options? Synthetic options are portfolios or trading positions holding a number of securities that when taken together, emulate another position. The payoff of the emulated, synthetic position and the actual position should, in theory, be identical. If the prices for these two are not identical then an arbitrage opportunity would exist in…
