The correlation between Stocks A and B is computed as the:
A)covariance between A and B divided by the standard deviation of A times the standard deviation of B.
B)standard deviation of A divided by the standard deviation of B.
C)standard deviation of AB divided by the covariance between A and B.
D)variance of A plus the variance of B divided by the covariance of AB.
E)square root of the covariance of AB.

Question

Quizplus · Accepted Answer

The correlation between Stocks A and B is calculated by dividing the covariance of A and B by the product of their individual standard deviations. This is because the covariance measures the extent to which the two stocks move together, while the denominator standardizes the measure to a range between -1 and 1, which gives the correlation coefficient. Option A provides this formula for calculating correlation.

The Correlation Between Stocks a and B Is Computed as The