The variance of Stock A is .0036,the variance of the market is .0059,and the covariance between the two is .0026.What is the correlation coefficient?
A).8776
B).1224
C).5010
D).5642
E).4918

Question

Quizplus · Accepted Answer

The correlation coefficient is calculated using the formula:
Correlation coefficient = covariance / (standard deviation of Stock A * standard deviation of the market)
We are given the variances of Stock A and the market, so we can calculate the standard deviations by taking the square root of these values:
Standard deviation of Stock A = sqrt(0.0036) = 0.06
Standard deviation of the market = sqrt(0.0059) = 0.077
Now we can use the formula to calculate the correlation coefficient:
Correlation coefficient = 0.0026 / (0.06 * 0.077) = 0.5642
Therefore, the answer is D) .5642.

The Variance of Stock a Is