Exercise

# Estimate the standard error of the correlation parameter

Still consider the constant expected return model (CER) introduced in the previous exercise. Correlations indicate the strength of the dependency between two variables. You are now interested in estimates of the correlations \(\rho_{ij}\) between the returns of the different assets \(i\) and \(j\). Furthermore, you would like to investigate the precision of these estimates by calculating the standard error of \(\hat{\rho}_{ij}\), which will be used for inference in later exercises.

Recall that the estimated SE values are computed using the analytic formula: $$\hat{SE}(\hat{\rho_{ij}}) = (1-\hat{\rho_{ij}}^2)/\sqrt{T}.$$

Instructions

**100 XP**

- Assign to
`cor_matrix`

the correlation matrix of the returns. - Assign to
`rhohat_vals`

the estimates of the correlations between "VBLTX, FMAGX", "VBLTX, SBUX", "FMAGX, SBUX". - Assign to
`se_rhohat`

the estimates of \(SE(\hat{\rho_{ij}^2})\) and print the result to the console.