- CFA Exams
- CFA Exam: Level I 2021
- Study Session 2. Quantitative Methods (1)
- Reading 8. Probability Concepts
- Subject 7. Covariance and Correlation

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**CFA Practice Question**

Consider the following statements:

II. Cov(X,X)

III. In general, for n securities, one must determine n(n-1)/2 different variances.

IV. The correlation is unitless.

B. II is false but IV is true.

C. I and IV are false.

I. The covariance matrix is always symmetric with regard to its diagonal.

II. Cov(X,X)

^{2}= Var(X)III. In general, for n securities, one must determine n(n-1)/2 different variances.

IV. The correlation is unitless.

Which of the following is incorrect?

A. Both II and III are false.

B. II is false but IV is true.

C. I and IV are false.

Correct Answer: C

Statements I and IV are true; statements II and III are false.

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**User Contributed Comments**
19

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

vt96 |
trick question |

roninacolyte |
very good question |

tssverma |
yes..sometimes it is better to use the elimination process .Like I knew IV is always true and choice C contradicts IV. |

sunilcfa |
Just remembered wat my prof used to tell me.... read the qts properly |

surob |
yeah, tricky one. |

Mattik |
Had it right, but answered wrong....better read the question twice |

viannie |
really sly! especially when it's midnight! |

CFAonTheBrain |
can a question like this be on the exam? |

Oarona |
For sure |

dcfa |
trick question definitely |

geofin |
Most people will know the correct answer but will will choose the wrong answer!!! |

gill15 |
It all makes sense to me except ii. Cov(X,X) = VarX How does Cov(X,X)^2 = VarX |

gill15 |
stupid...thats why all the comments were there.... |

schweitzdm |
This question is ridiculous. |

ashish100 |
@Viannie its literally midnight right now... weird |

ibrahim18 |
What sort of tricky and counter-intuitive question is this? Are we supposed to answer questions from the reverse? |

EEEEvia |
read question properly will definitely avoid unnecessary mistakes.... |

kingirm |
Just wordgames |

Freddie33 |
What does the first one mean? |