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As in the subject, I'm interested in a math puzzle of sorts:

If stock A has a 60% chance of rising, and stocks A and B have an 80% correlation, what is the chance of stock B rising?

Would it be possible to extend this concept so that if we know the probabilities of stocks A,B,C,D rising, we can work out the probability of stock E rising, given tha stock E has some correlation to stocks A,B,C,D?


For an indepth tutorial video on the basics of probability, see the Khan Academy Tutorial Videos on Probability.

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up vote 7 down vote accepted

You can't determine this with just the correlation; you need to know the joint probability.

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Thanks, I'll do some research into this area. –  Contango Jun 3 '11 at 15:28

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