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.
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 |