Reading 8: Probability Concepts-LOS k习题精选 2010, interpret, border, center

bmaggie

Session 2: Quantitative Methods: Basic Concepts
Reading 8: Probability Concepts

LOS k: Calculate and interpret covariance and correlation.

 

 

 

The covariance:

A) must be between -1 and +1.

B) must be positive.

C) can be positive or negative.

zaestau

c

bmaggie

The correlation coefficient for a series of returns on two investments is equal to 0.80. Their covariance of returns is 0.06974 . Which of the following are possible variances for the returns on the two investments?

A) 0.02 and 0.44.

B) 0.08 and 0.37.

C) 0.04 and 0.19.

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The correlation coefficient is: 0.06974 / [(Std Dev A)(Std Dev B)] = 0.8. (Std Dev A)(Std Dev B) = 0.08718. Since the standard deviation is equal to the square root of the variance, each pair of variances can be converted to standard deviations and multiplied to see if they equal 0.08718. √0.04 = 0.20 and √0.19 = 0.43589. The product of these equals 0.08718.

bmaggie

The covariance of the returns on investments X and Y is 18.17. The standard deviation of returns on X is 7%, and the standard deviation of returns on Y is 4%. What is the value of the correlation coefficient for returns on investments X and Y?

A) +0.65.

B) +0.85.

C) +0.32.

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The correlation coefficient = Cov (X,Y) / [(Std Dev. X)(Std. Dev. Y)] = 18.17 / 28 = 0.65

bmaggie

The covariance of returns on two investments over a 10-year period is 0.009. If the variance of returns for investment A is 0.020 and the variance of returns for investment B is 0.033, what is the correlation coefficient for the returns?

A) 0.350.

B) 0.444.

C) 0.687.

bmaggie

The covariance of returns on two investments over a 10-year period is 0.009. If the variance of returns for investment A is 0.020 and the variance of returns for investment B is 0.033, what is the correlation coefficient for the returns?

A) 0.350.

B) 0.444.

C) 0.687.

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The correlation coefficient is: Cov(A,B) / [(Std Dev A)(Std Dev B)] = 0.009 / [(√0.02)(√0.033)] = 0.350.

bmaggie

The correlation coefficient for a series of returns on two investments is equal to 0.80. Their covariance of returns is 0.06974 . Which of the following are possible variances for the returns on the two investments?

A) 0.02 and 0.44.

B) 0.08 and 0.37.

C) 0.04 and 0.19.

bmaggie

If given the standard deviations of the returns of two assets and the correlation between the two assets, which of the following would an analyst least likely be able to derive from these?

A) Strength of the linear relationship between the two.

B) Covariance between the returns.

C) Expected returns.

bmaggie

If given the standard deviations of the returns of two assets and the correlation between the two assets, which of the following would an analyst least likely be able to derive from these?

A) Strength of the linear relationship between the two.

B) Covariance between the returns.

C) Expected returns.

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The correlations and standard deviations cannot give a measure of central tendency, such as the expected value.

bmaggie

The covariance of the returns on investments X and Y is 18.17. The standard deviation of returns on X is 7%, and the standard deviation of returns on Y is 4%. What is the value of the correlation coefficient for returns on investments X and Y?

A) +0.65.

B) +0.85.

C) +0.32.