Consider the following correlations: Given this data, which of the following is most preferable if an investor can only select one pair of companies?
A) Apple & IBM
B) Disney & IBM
C) Disney & Apple
D) It does not matter which two are selected-there is no preference order.

Question

Consider the following correlations:  Given this data, which of the following is most preferable if an investor can only select one pair of companies?
A) Apple & IBM 
B) Disney & IBM 
C) Disney & Apple 
D) It does not matter which two are selected-there is no preference order.

Quizplus · Accepted Answer

The correlation coefficient between Disney and Apple is 0.96, which indicates a very strong positive correlation between the two companies. This means that their stock prices tend to move in the same direction, which could be an indication of their close relationship in terms of business operations and/or market dynamics. In contrast, the correlation coefficients between Apple and IBM, as well as between Disney and IBM, are 0.52 and 0.71, respectively, which are lower than the correlation between Disney and Apple. Therefore, if an investor can only select one pair of companies, the most preferable choice would be Disney and Apple.

Consider the Following Correlations: Given This Data, Which of the Following