mutually exclusive events example:doubt

ankuragrawal.nit
Finance Junkie
Posts: 64
Joined: Sun Apr 01, 2012 10:52 am

mutually exclusive events example:doubt

Postby ankuragrawal.nit » Tue Jan 10, 2012 5:21 pm

"the possible returns on the S&P 500 index for the next year"

Are these events mutually exclusive. They are definitely mutually exhaustive but are they mutually exclusive.
If yes then Why?

I believe the returns are correlated to some extent on any index.

For instance, an ETF consists of stocks that are correlated with each other.(correct me If I am wrong)

So If there is a correlation they cannot be mutually exclusive?

ankuragrawal.nit
Finance Junkie
Posts: 64
Joined: Sun Apr 01, 2012 10:52 am

Re: mutually exclusive events example:doubt

Postby ankuragrawal.nit » Fri Jan 13, 2012 1:44 am

Here is the exact paragraph:
"A simple probabilty distribution is tht for the roll of a fair die;there are six possible outcomes and each has a probabilty of 1/6 so they sum to 1.The probability distribution of all the possible returns on the S & P 500 index for the next year is a complex version of the same idea"

Now die has events that are independent of the previous outcome but this is not the case with S&P index cuz the returns on any index are correlated across time (time series data) else the whole science of technical analysis can be challenged!

I am not sure if I have interpreted things the right way. I apologize if I made a mess out of what is written in the paragraph.


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