Between 1980 and 1990, the standard deviation of the returns for the NIKKEI and the DJIA indexes were 0.19 and 0.06, respectively, and the covariance of these index returns was 0.0014. What was the correlation coefficient between the two market indicators?
A) 8.1428
B) 0.0233
C) 0.0073
D) 0.2514
E) 0.1228

Question

Quizplus · Accepted Answer

The correlation coefficient between the two market indicators is given by the formula:
Correlation = Covariance / (Standard Deviation of NIKKEI x Standard Deviation of DJIA)

Substituting the given values, we get:
Correlation = 0.0014 / (0.19 x 0.06) = 0.1228

Therefore, the answer is E) 0.1228

Between 1980 and 1990, the Standard Deviation of the Returns