- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 52. Portfolio Risk and Return: Part I
- Subject 2. Variance and Covariance of Returns

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**CFA Practice Question**

An analyst gathered the following information about two common stocks:

Variance of returns for Company B = 22.3

Covariance between returns of Company A and B = 8.65

Variance of returns for Company A = 15.5

Variance of returns for Company B = 22.3

Covariance between returns of Company A and B = 8.65

The correlation coefficient between returns for the two common stocks is closest to ______.

A. 0.25

B. 0.39

C. 0.47

**Explanation:**Standard deviation of A = 15.5

^{1/2}= 3.937

Standard deviation of B = 22.3

^{1/2}= 4.722

Correlation between A and B = 8.65/(3.937 4.722) = 0.465

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**User Contributed Comments**
1

User |
Comment |
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Mclarke |
variance ^1/2 = standard deviation in this case? |