Reading 11- LOS A (Part 1): Q6 between, class, dollars

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6.Consider the case when the Y variable is in U.S. dollars and the X variable is in U.S. dollars. The 'units' of the covariance between Y and X are:

A)   squared U.S. dollars.

B)   U.S. dollars.

C)   the square root of U.S. dollars.

D)   a range of values from -1 to +1.

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The correct answer was A)

The covariance is in terms of the product of the units of Y and X. It is defined as the average value of the product of the deviations of observations of two variables from their means. The correlation coefficient is a standardized version of the covariance, ranges from –1 to +1, and is much easier to interpret than the covariance.