Topic: Quantitative Methods for Finance - Is the following statements true or false? Explain the answer...

Topic: Quantitative Methods for Finance - Is the following statements true or false? Explain the answer briefly.

A correlation coefficient close to zero indicates the lack of dependence between two
variables.

Solutions

Expert Solution

Correlation coefficients are used to measure the strength of the relationship between two variables.
Correlation coefficient greater than zero indicates a positive relationship while a value less than zero signifies a negative relationship and a value of zero indicates no relationship between the two variables being compared.
Negative correlation, or inverse correlation, is a key concept in the creation of diversified portfolios that can better withstand portfolio volatility.

The possible range of values for the correlation coefficient is -1.0 to 1.0. In other words, the values cannot exceed 1.0 or be less than -1.0, and a correlation of -1.0 indicates a perfect negative correlation, and a correlation of 1.0 indicates a perfect positive correlation. Anytime the correlation coefficient is greater than zero, it's a positive relationship. Conversely, anytime the value is less than zero, it's a negative relationship. A value of zero indicates that there is no relationship between the two variables.

When two stocks, for example, move in the same direction, the correlation coefficient is positive. Conversely, when two stocks move in opposite directions, the correlation coefficient is negative.

If the correlation coefficient of two variables is zero, it signifies that there is no linear relationship between the variables. However, this is only for a linear relationship. It is possible that the variables have a strong curvilinear relationship. When the value of ρ is close to zero, generally between -0.1 and +0.1, the variables are said to have no linear relationship (or a very weak linear relationship).

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Indicate whether the following statements are TRUE or FALSE and explain your answer fully with an...

Indicate whether the following statements are TRUE or FALSE and explain your answer fully with an adequate explanation a)An efficient outcome is desirable because it allows us to make Pareto improvements. b)Unlike a consumer, a firm does not face a budget constraint. c)If the wage rate increases, then those who work have a stronger incentive to supply labor.

Indicate if the following statements are true or false. For false statements, explain why the statement...

Indicate if the following statements are true or false. For false statements, explain why the statement is false or give the correct answer.(1 point each) 6. A simple attribute can be broken down into smaller components. 7. The relationship between a weak and strong entity is called a multiple relationship. 8. An identifier is a combination of two or more attributes from two tables. 9. A unary relationship must have mandatory many cardinality on both sides. 10. If two entities...

Indicate whether each of the following statements is true, false, or uncertain, and explain your answer...

Indicate whether each of the following statements is true, false, or uncertain, and explain your answer in great detail. If a word or phrase is italicized and bolded your answer must include a concise definition of the word or phrase. You must include graphs when necessary. How does an economy get out of a recessionary gap? (use a graph.)

Indicate whether the following statements are true or false. Why or why not? Explain your answer...

Indicate whether the following statements are true or false. Why or why not? Explain your answer clearly and concisely. a. [5 points] The fact that health and income are positively correlated suggests that a policy of transferring income from the wealthy to the poor will increase overall health in society. b. [5 points] The concept of need in health care derives from the presence of externalities in healthcare markets.

Indicate whether the following statements are TRUE or FALSE and explain your answer fully, but succinctly....

Indicate whether the following statements are TRUE or FALSE and explain your answer fully, but succinctly. Without an adequate explanation, you will get no credit. a)An efficient outcome is desirable because it allows us to make Pareto improvements. b)Unlike a consumer, a firm does not face a budget constraint. c)If the wage rate increases, then those who work have a stronger incentive to supply labor.

Indicate whether the following statements are True or False and explain your answer. 1. The strong...

Indicate whether the following statements are True or False and explain your answer. 1. The strong form of the efficient markets hypothesis (EMH) states that even an investor armed with both public and insider information cannot consistently earn superior returns. 2. Investment banks generally specialize in lending money whereas commercial banks typically help companies raise capital from other parties. 3. A negotiable certificate of deposit would be considered an example of a capital market instrument. 4. You notify your broker...

Indicate whether each of the following statements are true, false, or uncertain and explain your answer....

Indicate whether each of the following statements are true, false, or uncertain and explain your answer. a. Consider two zero-coupon bonds, one with a short maturity, and one with a longer maturity. The value of the long-maturity bond is more sensitive (in % terms) to changes in interest rates than the short-maturity bond' s value. b. If the Internal Rate of Return (IRR) of an investment project is above its cost of capital, then the NPV of the project (calculated...

State whether the following statements are true or false, and explain your answer if you judge...

State whether the following statements are true or false, and explain your answer if you judge the statement to be false (a statement must always be true to be considered true). i) In an efficient market all investments should have the same long-run average return ii) In an efficient market all investors should have the same long-run average return iii) Stocks exhibiting positive or negative abnormal returns indicates market inefficiency iv) Evidence of irrational behavior on the...

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain...

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important. A6-5. Suppose a $1000 bond pays annual “coupon interest” equal to 10% and matures in two years. If the yield on bonds with similar risk characteristics is 3%, the price of this bond today is greater than $1000. A6-6. Suppose the Bank of...

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain...

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important. A6-1. An economy with a recessionary gap will never return to long run equilibrium without policy intervention. A6-2. In a closed economy, investment will equal the sum of private saving and government saving. A6-3. An increase in private saving for a closed economy...

Subjects