Reading 11- LOS F (Part 2): Q22 return, companies, stocks, monthly, between

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22.A simple linear regression is run to quantify the relationship between the return on the common stocks of medium sized companies (Mid Caps) and the return on the S& 500 Index, using the monthly return on Mid Cap stocks as the dependent variable and the monthly return on the S& 500 as the independent variable. The results of the regression are shown below:

	Coefficient	Standard Error of coefficient	t-Value
Intercept	1.71	2.950	0.58
S& 500	1.52	0.130	11.69
R2= 0.599

The strength of the relationship, as measured by the correlation coefficient, between the return on Mid Cap stocks and the return on the S& 500 for the period under study was:

A)   0.599.

B)   2.950.

C)   0.130.

D)   0.774.

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The correct answer was D)

You are given R² or the coefficient of determination of 0.599 and are asked to find R or the coefficient of correlation. The square root of 0.599 = 0.774.