Consider the following probability distribution for stocks A and B: The coefficient of correlation between A and B is
A)0.474.
B)0.612.
C)0.590.
D)1.206.

Question

Consider the following probability distribution for stocks A and B:  The coefficient of correlation between A and B is
A)0.474. 
B)0.612. 
C)0.590. 
D)1.206.

Quizplus · Accepted Answer

cov_A,B = 0.15(8% - 13%)(8% - 8.4%) + 0.2(13% - 13%)(7% - 8.4%) + 0.15(12% - 13%)(6% - 8.4%) + 0.3(14% - 13%)(9% - 8.4%) + 0.2(16% - 13%)(11% - 8.4%) = 2.40; ρ_A,B = 2.40/[(2.45)(1.66)] = 0.590.

Consider the Following Probability Distribution for Stocks a and B