The returns on the stock of DEF and GHI companies over a 4 year period are shown below:

From this limited data you should conclude that returns on
A)DEF and GHI are negatively correlated.
B)DEF and GHI are somewhat positively correlated.
C)DEF and GHI are perfectly positively correlated.
D)DEF and GHI are uncorrelated.

Question

The returns on the stock of DEF and GHI companies over a 4 year period are shown below:

From this limited data you should conclude that returns on
A)DEF and GHI are negatively correlated. 
B)DEF and GHI are somewhat positively correlated. 
C)DEF and GHI are perfectly positively correlated. 
D)DEF and GHI are uncorrelated.

Quizplus · Accepted Answer

The returns on the stock of DEF and GHI companies show a somewhat linear positive trend, indicating that the two companies are somewhat positively correlated. However, this limited data is not enough to conclude that the correlation is perfect, therefore option C is not the best choice. The data does not show a clear negative or zero correlation, ruling out options A and D.

The Returns on the Stock of DEF and GHI Companies