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23 July, 01:28

The variance of returns of Asset A is 625. The variance of returns of Asset B is 1,225. The covariance of returns between Asset A and Asset B is 600. The correlation of returns between Asset A and Asset B is closest to:

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  1. 23 July, 01:48
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    The correlation of returns between Asset A and Asset B is closest to 0.685714

    or 68.57%

    Explanation:

    The formula to find the correlation of an asset is

    Correlation of AB = Co variance AB/Standard deviation A * Standard deviation B

    Co variance AB = 600

    Standard deviation of A = (625) ^0.5=25

    Standard deviation of B = (1,225) ^0.5=35

    Put these values in the formula

    600 / (25*35) = 0.685714
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