Reading 11- LOS A (Part 1): Q8 style

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8.A sample covariance of two random variables is most commonly utilized to:

A)   identify and measure strong nonlinear relationships between the two variables.

B)   estimate the “pure” measure of the tendency of two variables to move together over a period of time.

C)   calculate the correlation coefficient, which is a measure of the strength of their linear relationship.

D)   demonstrate either the presence or absence of spurious correlation of the variables.

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The correct answer was C)

Since the actual value of a sample covariance can range from negative to positive infinity depending on the scale of the two variables, it is most commonly used to calculate a more useful measure, the correlation coefficient.