AAFM CWM_LEVEL_2 Exam - Topic 3 Question 110 Discussion

Actual exam question for AAFM's CWM_LEVEL_2 exam

Question #: 110
Topic #: 3

Section A (1 Mark)

The covariance of the market returns with the stocks returns is 0.008. The standard deviation of the market is 8% and standard deviation of stock's return is 11%. What is the correlation coefficient between stocks and market returns?

A0.5

B0.91

D1.25

Show Suggested Answer

Suggested Answer: B

by Keneth at Jan 05, 2026, 05:16 AM

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Jeannetta

3 months ago

I feel like A) 0.5 is too low for this scenario.

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Tyra

3 months ago

I agree, B makes sense with those numbers.

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Lenny

3 months ago

I’m leaning towards option B) 0.91. It seems realistic.

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Daren

3 months ago

I think the correlation coefficient is crucial for understanding risk.

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Felice

3 months ago

Just did the math, definitely B) 0.91!

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Tracey

4 months ago

Wait, are you sure about those numbers? Sounds off.

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Florencia

4 months ago

No way it's 1.25, that doesn't make sense!

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Evangelina

4 months ago

I think it's B) 0.91, seems right to me!

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Clement

4 months ago

The correlation coefficient is calculated using covariance and standard deviations.

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Irma

4 months ago

I bet the person who wrote this question was feeling a little "covariant" when they came up with it. B) 0.91 is the answer, no question.

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Elmer

4 months ago

Ah, the classic covariance and standard deviation problem. B) 0.91 is the way to go, no doubt about it.

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Glennis

5 months ago

D) 1.25 seems a bit too high, don't you think? I'm going with B) 0.91 as well.

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Pearly

5 months ago

Hmm, I'm not sure about this one. I think it might be C) 1, but I'll have to double-check the calculations.

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Ty

5 months ago

The correlation coefficient is definitely B) 0.91. I remember learning this formula in my finance class.

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Colton

6 months ago

I believe the formula is correlation = covariance divided by the product of the standard deviations. I just need to double-check my calculations!

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Josephine

6 months ago

I’m a bit confused about the options. I know the correlation should be between -1 and 1, so I’m pretty sure D) 1.25 can’t be right.

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Sherita

6 months ago

This question feels familiar; I think we did a similar one in class. I just need to recall the formula correctly.

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Arlyne

6 months ago

I think I remember that the correlation coefficient is calculated using covariance and the standard deviations, but I'm not entirely sure how to set it up.

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