Exercise

Fama French factor correlations

In this exercise you want to check how much correlation your portfolio returns have with the Fama French factors. With a quick correlation table, you can very easily gain insight into how your portfolio returns move with for example the excess market return or the size and value factors. Remember, the Fama French factor model was defined as follows:

$$ R_{pf} = \alpha + \beta_m MKT + \beta_s SMB + \beta_h HML $$

Available is the data containing the factor returns and your portfolio returns under factor_returns. Let's give it a try!

Instructions 1/2

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Obtain the pairwise correlations of your dataset factor_returns and interpret the results.