Consider the following probability distribution for stocks A and B: The coefficient of correlation between A and B is
A)0.46.
B)0.60.
C)0.58.
D)1.20.

Question

Consider the following probability distribution for stocks A and B:  The coefficient of correlation between A and B is
A)0.46. 
B)0.60. 
C)0.58. 
D)1.20.

Quizplus · Accepted Answer

covA,B = 0.1(10% - 13.2%)(8% - 7.7%) + 0.2(13% - 13.2%)(7% - 7.7%) + 0.2(12% - 13.2%)(6% - 7.7%) + 0.3(14% - 13.2%)(9% - 7.7%) + 0.2(15% - 13.2%)(8% - 7.7%) = 0.76; rA,B = 0.76/[(1.1)(1.5)] = 0.46.

Consider the Following Probability Distribution for Stocks a and B