If the covariance between stock A and stock B is 100,the standard deviation of stock A is 10% and that of stock B is 20%,calculate the correlation coefficient between the two securities.
A)-0.5
B)+1.0
C)+0.5
D)0.0

Question

Quizplus · Accepted Answer

The formula for correlation coefficient (ρ) is:
ρ = Cov(A,B) / (σA * σB)

Given, Cov(A,B) = 100, σA = 10% = 0.1, σB = 20% = 0.2

So, ρ = 100 / (0.1 * 0.2) = +0.5

Therefore, the answer is C) +0.5 as it is the only choice that matches the calculated correlation coefficient.

If the Covariance Between Stock a and Stock B Is