How does Monte Carlo function use historical data
I am interested in understanding how the MC function uses data and does its calculations. Namely, is the historical range used to establish a range of possible returns for the specific asset class (ie -40% to +30%) and to randomly pick a figure from within the historical range to apply to the asset amount from the prior year, independently of the prior years returns.
Or, does is the range of possible returns for a given year, influenced by the prior years returns?
Similarly, how does the MC engine work across asset classes. Given two highly correlated assets, ie two US Equity funds of different composition, will the MC engine select and utilize a predicted return for each fund that is consistent with the historical correlation of those assets as shown in the historical data for the asset, or will it select returns independently and ignore historical correlations.