Question

The standard deviation of return on investment A is 10%, while the standard deviation of return on investment B is 5%. If the covariance of returns on A and B is .0030, the correlation coefficient between the returns on A and B is _________.

Answer 1

The correlation coefficient between the returns on investment A and B is 0.60.

Step-by-step explanation:

The correlation coefficient between the returns on investment A and B can be calculated using the formula:

Correlation coefficient = Covariance / (Standard deviation of A ×Standard deviation of B)

Given that the standard deviation of return on investment A is 10% (0.10), the standard deviation of return on investment B is 5% (0.05), and the covariance of returns on A and B is 0.0030, we can plug in these values into the formula:

Correlation coefficient = 0.0030 / (0.10 ×0.05) = 0.60

Therefore, the correlation coefficient between the returns on investment A and B is 0.60.

Answer 2

The answer is 60.

Step-by-step explanation:

The First step in solving the example given, is to recall the following steps to be taken

The standard deviation of return on investment A =10%

The standard deviation of return on investment B =5%

The co-variance of returns both on A and B =.0030

The next step is as follows

co-variance = correlation

.0030 (.05 x .10) = 60

Therefore the correlation coefficient between the returns of A and B is 60