- 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
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 = 15.51/2 = 3.937
Standard deviation of B = 22.31/2 = 4.722
Correlation between A and B = 8.65/(3.937 4.722) = 0.465
Standard deviation of B = 22.31/2 = 4.722
Correlation between A and B = 8.65/(3.937 4.722) = 0.465
User Contributed Comments 1
| User | Comment |
|---|---|
| Mclarke | variance ^1/2 = standard deviation in this case? |