The variance of the rates of return is 0.25 for stock X and 0.01 for stock Y. The covariance between the returns of X and Y is −0.01. The correlation of the rates of return between X and Y is ________.
A) −0.25
B) −0.20
C) 0.20
D) 0.25

Question

Quizplus · Accepted Answer

Correlation (ρ) = Covariance (σxy) / (Standard Deviation of Stock X * Standard Deviation of Stock Y)

ρ = -0.01 / (0.5 * 0.1) = -0.20

The Variance of the Rates of Return Is 0