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Yes, all (ex) AAA-rated derivatives of subprime mortgages are highly correlated. No, that (in itself) does not make them more risky. You just do not want to inv
by alphaBetaGamma 16y ago
Yes, all (ex) AAA-rated derivatives of subprime mortgages are highly correlated. No, that (in itself) does not make them more risky. You just do not want to invest %100 of your portfolio in them.
E.g. U.S. Government debt is currently AAA rated. But all bonds and treasuries are highly correlated: in five years either 0% or 100% of US Gov debt will still be AAA.
- _delirium 16y agoYeah, it's somewhat similar to weather predictions for nearby areas. If the weather forecast predicts 10% chance of rain for Palo Alto, and the same for East Palo Alto, Mountain View, Atherton, etc., the expected outcome is not that it will rain in exactly 10% of those places. It will probably rain in close to 0% or close to 100% of them.