Stocks A and B have a correlation coefficient of +1.If stock A went from $10 to $12 over the past month, what is the price of stock B, if its price one month ago was $5?
A)$5
B)$4
C)$6
D)Cannot be determined

Question

Quizplus · Accepted Answer

Since the correlation coefficient is +1, stocks A and B have a perfect positive correlation. This means that when stock A went up by 20%, we know that stock B also went up by 20%. Therefore, stock B's price one month ago was $4, and 20% of $4 is $0.8, so the current price of stock B is $4+$0.8=$6. Therefore, the correct choice is (C).

Stocks a and B Have a Correlation Coefficient of +1