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**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.

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**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 |