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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?
Suggested Answer: B
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26 comments · newest first
JE
Jeannetta
6 months ago
I feel like A) 0.5 is too low for this scenario.
TY
Tyra
6 months ago
I agree, B makes sense with those numbers.
LE
Lenny
6 months ago
I’m leaning towards option B) 0.91. It seems realistic.
DA
Daren
6 months ago
I think the correlation coefficient is crucial for understanding risk.
FE
Felice
6 months ago
Just did the math, definitely B) 0.91!
TR
Tracey
7 months ago
Wait, are you sure about those numbers? Sounds off.
FL
Florencia
7 months ago
No way it's 1.25, that doesn't make sense!
EV
Evangelina
7 months ago
I think it's B) 0.91, seems right to me!
CL
Clement
7 months ago
The correlation coefficient is calculated using covariance and standard deviations.
IR
Irma
7 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.
EL
Elmer
7 months ago
Ah, the classic covariance and standard deviation problem. B) 0.91 is the way to go, no doubt about it.
GL
Glennis
8 months ago
D) 1.25 seems a bit too high, don't you think? I'm going with B) 0.91 as well.
PE
Pearly
8 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.
TY
Ty
8 months ago
The correlation coefficient is definitely B) 0.91. I remember learning this formula in my finance class.
CO
Colton
9 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!
JO
Josephine
9 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.
SH
Sherita
9 months ago
This question feels familiar; I think we did a similar one in class. I just need to recall the formula correctly.
AR
Arlyne
9 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.
MA
Marquetta
9 months ago
Ugh, I'm not sure I even remember how to calculate the correlation coefficient. This is going to take some thinking.
NA
Nathan
10 months ago
Alright, let's do this. I'm feeling pretty confident about this type of question.
VA
Valene
10 months ago
Hmm, this seems straightforward enough. I just need to remember the right steps and I should be able to get the right answer.
CH
Chandra
10 months ago
Wait, what's the formula for correlation coefficient again? I'm a bit fuzzy on that.
CA
Cammy
10 months ago
Okay, I think I know how to approach this. I just need to plug the values into the formula for correlation coefficient.
OT
Otis
4 months ago
So, what do you think the answer is?
AM
Amina
4 months ago
Yeah, just divide the covariance by the product of the standard deviations.
FA
Fanny
6 months ago
I think the formula is pretty straightforward.