The covariance of the returns between Wildcat Stock and Sun Devil Stock is 0.09875. The variance of Wildcat is 0.2116, and the variance of Sun Devil is 0.1369. What is the correlation coefficient between the returns of the two shares?
A) 0.580200
B) 0.293347
C) 0.340823
D) 0.578731

Question

Quizplus · Accepted Answer

The correlation coefficient is calculated as the covariance divided by the product of the standard deviations of the two stocks. The standard deviation of Wildcat is √0.2116 and for Sun Devil is √0.1369. The correlation coefficient is 0.09875 / (√0.2116 * √0.1369) = 0.580200.

The Covariance of the Returns Between Wildcat Stock and Sun