Question 3 Probability Rate of Return on Security A...
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Finance
Question 3
Probability
Rate of Return on Security A
Rate of Return on Security B
0.1
30
25
0.2
22
18
0.2
15
17
0.3
6
8
0.05
5
7
0.15
10
6
The correlation coefficient, ,, measures the strength of association between two shares (in this case, shares A and B) and is given by:
,=
Where is the covariance of the expected returns between shares A and B and , are the respective standard deviations of the returns on shares A and B. The column headed probability shows the chance of the various expected returns on shares A and B.
Based on the above information in the table, calculate the correlation coefficient between shares A and B. Show all workings.
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