- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 8. Probability Concepts
- Subject 7. Covariance and Correlation

###
**CFA Practice Question**

Which of the following statements is not true?

B. An inverse relationship between X and Y implies negative correlation.

C. The correlation between two random variables is given by the ratio of their covariance with the product of their standard deviations.

A. -1 < σ(X,Y) < 1

B. An inverse relationship between X and Y implies negative correlation.

C. The correlation between two random variables is given by the ratio of their covariance with the product of their standard deviations.

Correct Answer: A

-1 < σ(X,Y) < 1 is incorrect. The correct statement is: -1 <= σ(X, Y) <= 1. The other statements are true.

###
**User Contributed Comments**
4

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

annieyiyan |
I thought the correct answer: 0<=p(x,y)=1, why the joint probility could go negotively (-1<=p(x,y) |

mike250 |
it's not joint prop. It is the correlation between X and Y. |

alester83 |
annie, that statement is correct for covariance |

Rachelle3 |
A very complicated way of saying at some point it must be from -1 up to 1 compare correct answer to the option of the wrong answer A which does not show < = signs. |