The variance of return on investment A is 144 percent squared while the variance of return...

The variance of return on investment A is 144 percent squared while the variance of return on investment B is 225 percent squared. If the covariance of returns on A and B is 150 percent squared, the correlation coefficient between the returns on A and B is closest to:

A. 187.5
B. 0.0046
C. 1.2
D. 0.83

Expert Solution

Correlation coefficient between the returns on A and B is closest to?

Answer: D) 0.83

Formula for Calculating Correlation coefficient is as follows

Data provided in the Question are

Covariance of returns on A and B = 150%

Variance of return on investment A = 144%

Variance of return on investment B = 225%

Since Standard Deviation is not provided we need to find out standard deviation in order to calculate Correlation coefficient of stock return.

Formula for Calculating Standard Deviation is as follows

Correlation coefficient of stock A and B = 150 ÷ (12 * 15)

= 0.83

jeff jeffy answered 6 hours ago

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