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**CFA Practice Question**

Two securities were analyzed and the following sample statistics were found: Var1 = 23.5; Var2 = 44.6; Covariance12 = 23.3.

What is the correlation co-efficient between securities 1 and 2?

A. 0.02

B. 0.72

C. 0.52

**Explanation:**Corrln12 = Cov12/(SD1 x SD2) = 23.3/Sqrt(23.5 x 44.6) = 0.72.

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**User Contributed Comments**
5

User |
Comment |
---|---|

PedroEdmundo |
don't agree: correlation=cov12/rootsquare(var1*var2), thus the answer is A |

volkovv |
pedro's formula is correct, but its the same formula that is given in the explanation, and B is correct answer 23.3/(23.5^.5*44.6^.5)=.72 or 23.3/(23.5*44.6)^.5=.72 |

Dinosaur |
I think A is if you forget to square root the variances to get to std devs |

Oarona |
Pedro's formula is wrong |

SKIA |
Yes, do not VOTE FOR PEDRO - he's wrong |