Question

The covariance of the returns between Stock A and Stock B is 0.0087. The standard deviation of Stock A is 0.26, and the standard deviation of Stock B is 0.37. What is the correlation coefficient between the returns of the two stocks?

Answer 1

correlation coefficient 0.0904

Step-by-step explanation:

correlation coefficient can be calculated by using given relation:

`correlation\ coefficient = (Covariance)/((standard\ deviation\ of\ Stock A * standard\ deviation\ of\ Stock\ B ))`

co variance of the returns = 0.0087

standard deviation (Stock A) = 0.26

standard deviation (Stock B) = 0.37

= 0.0087 / (0.26*0.37)

= .0087 / 0.0962

= 0.0904