Question

Closing prices of two stocks are recorded for 50 trading days. The sample standard deviation of stock X is 4.665 and the sample standard deviation of stock Y is 8.427. The sample covariance is 35.826.

Calculate the sample correlation coefficient. (Round your answer to 4 decimal places.)
Correlation coefficient

Answer 1

0.9113

Explanation:

Given :

Sample standard deviation of Stock X = 4.665

Sample standard deviation of Stock Y = 8.427

Sample Covariance = 35.826

The Correlation Coefficient, R is related to sample covariance and standard deviation using the formular :

R = Covariance(X, Y) / (SD(X) * (SD(Y))

R = 35.826 / (4.665 * 8.427)

R = 35.826 / 39.311955

R = 0.9113

Hence, correlation Coefficient, R = 0.9113 which depicts a strong positive relationship.