While Stock A has a standard deviation of 37 percent, Stock B has a standard deviation of 46 percent. Given the covariance between the two stocks is -0.0255, determine the correlation coefficient.
A) - 0.25
B) 0.60
C) - 0.15
D) 0.30
E) 0.15

Question

Quizplus · Accepted Answer

The correlation coefficient ($r$) is calculated using the formula $r = \frac{cov(X,Y)}{\sigma_X \sigma_Y}$, where $cov(X,Y)$ is the covariance between the two variables (stocks in this case), and $\sigma_X$ and $\sigma_Y$ are the standard deviations of X and Y, respectively. Plugging in the given values: $r = \frac{-0.0255}{0.37 \times 0.46} = -0.15$.

While Stock a Has a Standard Deviation of 37 Percent