For a two stock portfolio containing Stocks i and j,the correlation coefficient of returns (rᵢⱼ)is equal to the square root of the covariance (covᵢⱼ).

Question

Quizplus · Accepted Answer

The correlation coefficient of returns between stocks i and j (rᵢⱼ) is the covariance between the two stocks (covᵢⱼ) divided by the product of their standard deviations. Therefore, the square root of the covariance (covᵢⱼ) is not necessarily equal to the correlation coefficient (rᵢⱼ).

For a Two Stock Portfolio Containing Stocks I and J,the