CFA Practice Question

CFA Practice Question

Two random variables have standard deviations of 25 and 34 respectively. Which of the following is NOT a feasible covariance estimate between the two?
A. 850
B. 1,139
C. -425
Explanation: Based on the covariance given, the correlation co-efficient = 1,139/(25 x 34) = 1.34. Correlation cannot be greater than 1 or less than -1. This is an infeasible covariance estimate.

User Contributed Comments 9

User Comment
baroyan correlation can't be greater than 1
Kuki or less than -1
piotrekdrozd great question, tricky if you don't have much time...
apiccion Them trixy CFAs. Always taking my precious time.
Allen88 great question!
AUAU one can afford no more than 36 Qs incorrect in am / pm session of exams.
boddunah very nice question.
moneyguy Looks like a 45 second question to me.
GBolt93 the question really only requires one calculation
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