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 |