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29 March, 21:19

The variance of stock a is. 005, the variance of the market is. 008 and the covariance between the two is. 0026. what is the correlation coefficient?

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  1. 29 March, 22:51
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    Correlation coefficient formula = Covariance between Stock A and market / Standard deviation of stock * standard deviation of market

    Covariance between stock and market = 0.0026

    Standard deviation of stock A = square root of variance = square root of (0.005) = 0.07071

    Standard deviation of market = square root of (0.008) = 0.08944

    Correlation coefficient = 0.0026 / (0.07071 * 0.08944) = 0.4111

    Answer is 0.4111
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